* Palestinians have seen little benefit from years of growth
* Bank says restrictions on investment holding back economy
* Violence on the increase this year
By Noah Browning
RAMALLAH, West Bank, Oct 8 The Palestinian
economy in the Israeli-occupied West Bank shrank for the first
time in a decade in the first half of 2013, the World Bank said,
blaming a decline in foreign aid and myriad restrictions imposed
Israel has pointed repeatedly to strong growth in the West
Bank in recent years as vital to restoring relative stability to
the area, so news of a worsening outlook will raise concerns of
a possible rise in unrest.
The World Bank blamed the 0.1 percent economic contraction
on a decline in foreign budget support to the aid-reliant
Palestinian government, saying it exposed the "distorted nature"
of the economy.
Its report focused particularly on territory known as Area C
- some 61 percent of the West Bank which is under full Israeli
control. The World Bank said the Palestinians could boost their
economy by a third if they were able to exploit this land.
Palestinians have self rule in so-called Area A, which makes
up 18 percent of the West Bank, and share responsibility for a
further 21 percent in Area B, but the resource-rich Area C is
administered by Israel and is home to many Jewish settlements.
"The manner in which Area C is currently administered
virtually precludes Palestinian businesses from investing
there," the World Bank said. "Since Area C is where the majority
of the West Bank's natural resources lie, the impact of these
restrictions on the Palestinian economy has been considerable."
The Palestinian Territories, which combine the West Bank and
Gaza Strip, saw annual economic growth of some 9 percent in the
years 2008-2011. That slowed to just 1.9 percent year on year in
the first six months of 2013, with West Bank GDP contracting.
"The faltering nature of the peace process and the
persistence of administrative restrictions as well as others on
trade, movement and access have had a dampening effect on
private investment and private sector activity," the Bank said.
It said donor aid had fallen by more than half in 2012.
Economists have blamed the drop on the global economic downturn,
dwindling U.S. funding and Arab world uprisings that diverted
the attention of wealthy Gulf states.
The years of rapid growth have brought little obvious
improvement in people's lives. Unemployment and poverty have
grown to affect around a quarter of Palestinians.
Israeli-Palestinian peace talks resumed in late July after a
three-year hiatus. Negotiators will examine problems raised by
the World Bank report, the Israeli foreign ministry said.
"The report touches on numerous important issues which will
be settled in the current negotiations," said ministry spokesman
Yigal Palmor. He added that the Washington-based bank's analysis
was "incomplete, partial .. and therefore totally unrealistic".
Calling Area C "key to future Palestinian economic
development", the World Bank said at least $3.4 billion could be
added to the economy if it could access the territory.
Much of this growth would come from value-added sectors like
mineral extraction at the Dead Sea, quarrying and construction.
Israel has resisted Palestinian economic initiatives and
foreign humanitarian help to local residents in Area C, saying
its status had to be resolved through peace negotiations.
Jewish Home, a party in Israeli Prime Minister Benjamin
Netanyahu's coalition, called for annexing Area C outright
during campaigning for parliamentary polls earlier this year.
Netanyahu has said restrictions on Palestinians eased in
recent years and this was helping improve their lives and
But violence has been on the increase recently, with Israeli
soldiers killing 15 Palestinians in the West Bank this year and
Palestinian militants killing three Israelis.
(Editing by Crispian Balmer and Tom Pfeiffer)