Policies to Promote an Enabling Environment for a Knowledge-based Economy in Palestine and Jordan

FEM31-18 | October 2007


« Policies to Promote an Enabling Environment for a Knowledge-based Economy in Palestine and Jordan »


Fause Ersheid, (MAS), Dr. Amer Jabarin, (RSS)


Note :

This document has been produced with the financial assistance of the European Union within the context of the FEMISE program. The contents of this document are the sole responsibility of the authors and can under no circumstances be regarded as reflecting the position of the European Union.

Summary :

This study set out to investigate the readiness of the Palestinian and Jordanian economies to transform into knowledge economies. The World Bank ‘pillars’ of the knowledge economy (an educated labor force, ICT infrastructure and infostructure, research and development and the institutional regime) were used to form the framework for the assessment. An extensive review of literature was carried out, including a review of local and international literature. In addition, semi-structured interviews were carried out with key government officials and private sector companies. The readiness of the economies of Palestine and Jordan regarding each one of the four KBE pillars is summarized below.
KBE Pillars in Palestine
Human Capital Developments
Human capital development in Palestine is improving as demonstrated by such indicators as high school enrolment, reduced illiteracy rate, improved school curricula, and slow but steady introduction of ICT in schools. The Palestinian labor force is estimated at 2,142,000 according to PCBS (Q4, 2006). Roughly, 72% are employed and 28% are unemployed (ILO definition). The distribution of the labor force participation by years of schooling shows that those with higher levels of schooling have a clear advantage in the labor force.
The total number of students enrolled in primary schools reached 953,621 in the school year 2005/2006. Of this total, 70% attend public schools, 6% attend private schools and 24% are in UNRWA schools. Another 124,867 students are enrolled in secondary schools, with 96% attending public schools and the remainder enrolled in private schools. Overall, almost all children up to the age of 12 are attending school and access to basic secondary education is highly equitable with regard to gender. Transition rates to secondary education have been in excess of 90% over the last 5 years. In addition, about 80% of Tawjihi (Baccalaureate) graduates who pass the General Examination continue their education to some kind of post-secondary education. However, the expansion in secondary education in the past few years has been unequally distributed among science, arts and vocational streams. In fact, enrolment in science and vocational streams has continued to drop while that of the arts stream has increased by 2% since the academic year 1999/2000. Overall, about 75% of students who pass the General Examination are from the arts stream.
Regarding tertiary education, 55% of enrolment is found at traditional universities and 33% at Al- Quds Open University. The relative share of education, social and commercial sciences has been growing, while that of engineering and sciences has declined over recent years. Total enrolment in vocational schools has increased from 3000 in 1999/2000 to 5561 in 2004/2005. This low enrolment in vocational education is attributed to the unattractiveness of vocational education in Palestinian society. In 2000, the Palestinian school curricula were introduced with the following innovations: The first Arabic country to teach English starting from the 1st grade; Technology introduced from the 5th grade all the way through the 12th grade as a compulsory subject; Home Economics, Environment and Health introduced in grades 7-10 as an elective subject; a third foreign language introduced as an elective subject; and Economics and Management are introduced in 11th grade and 12th grade in science and arts streams.
Despite the commendable efforts exerted by MOEHE (Ministry of Education and Higher Education) to improve the quality of education and the extent of its coverage, the fact remains that the Palestinian education system is largely based on rote-learning; one which emphasizes facts, descriptive knowledge and abstract theory at the expense of cognitive learning and critical thinking.
Although Palestine is still at the initial stages of implementing ICT in schools, about 50% of primary and secondary schools have computer laboratories and 70% have access to the Internet. Recently Paltel (the Palestinian Telecommunications Company) has signed an agreement with MOEHE to connect 150 schools to the internet every year until 2015. In addition, 54% of schools have school libraries and 50% have science labs. Although illiteracy rates in the Palestinian Territory have been declining over the years, the female illiteracy rate remains high. Illiteracy rates amongst individuals aged 15 years and older declined from 15.7% in 1995 to 6.5% in 2005. Expenditure on education has been increasing in the Palestinian Territory for the past five years with private expenditure accounting for about one half of the total. Total education expenditure as a percentage of GDP increased from 7.5% in 2000 to 11.5% in 2003.
Job training in the Palestinian context is rather limited in terms of the number of programs and scope of coverage. Moreover, most of the training received by university graduates is theoretical in nature and lacks practicality. Only a small number of companies do provide training for their employees, as the majority of companies see training as an unnecessary and expensive practice.
Research and Development
Research and development in Palestine is inadequate and is lacking in various aspects. Research output in the Palestinian Territory is limited in volume, relatively poor in quality and lacks a clear direction. This notwithstanding, some attempts have been made to draw attention to research in the Palestinian Territory. A national policy for Science and Technology has been drafted, though no action has yet been taken to develop it further.
Research activities in the Palestinian Territories are characterized by the extremely limited role played by universities and the leading role played by NGOs. In fact, the bulk of research that is produced in the Territory is concentrated in the areas of social sciences and development projects; only 5% of total research produced in Palestine until 2002 was scientific in nature. NGOs produced the bulk of research although this type of research generally involves issues related to democracy, human rights, gender and development. Another portion of research is produced through government and its ministries and agencies; this is often characterized by mediocre quality and normally involves the investigation of particular sectors or issues of direct interest to a given ministry. Local universities also produce their research although it is limited due to universities’ tight research budgets. Some estimates claim that there are only 0.75 publications per university researcher per year.
Research in Palestine faces numerous obstacles including, a “brain drain” as many researchers opt to work abroad, a lack of qualified researchers in particular fields, job instability for researchers, a lack of cooperation and coordination amongst different research centers, a lack of funds and insufficient intellectual property rights laws.
ICT Infrastructure and Infostructure
IT infrastructure in the Palestinian territory has improved substantially especially after the arrival of the PNA. In 1997, Paltel was established to provide landline services. In 1999, Jawwal was established to provide mobile telephony. As a result of the establishment of Paltel the number of fixed lines increased in the West Bank and Gaza strip from 80,000 in 1996 to 341,330 in 2006 with a penetration rate of 9%. Today, 545 localities within the Palestinian Territory are covered by fixed telephony, meaning 98% of Palestinians living in serviced areas in 2006. In addition, the number of Jawwal subscribers exceeded 820,000 during the same year. In April, 2005, Wataniya International won the bid to be the second mobile provider in Palestine.
According to PCBS statistics, 32.8% of Palestinian households own computers and 15.9% have access to the internet. Additionally, 51% of individuals aged 10 years and older use computers and 18.4% use the internet. An increasing percentage (15.3%) of home internet users prefer to connect to the internet via ADSL and 68.5% connect via dialup connections. In June 2007, the number of ADSL subscribers exceeded 40,000 with a penetration rate of 12.6%. Moreover, there are over 300 internet cafes in the Palestinian Territory. Palestinians introduced a new innovation in the internet cafe business: some internet cafes have been designated as for women only.
Telecommunications services in the Palestinian territory are relatively expensive in comparison to neighbouring countries. Israel provides services to its citizens for one third the cost of similar services in the Palestinian Territory. Overall, the total number of IT companies in the Palestinian Territory is estimated at 150. The sector employed between 4000 and 5000 IT professionals in 2005. Although there are a number of cultural centers in Palestine, their number remain relatively small compared with the population size. There are 174 cultural centers, 5 museums, 14 theaters, 31 public libraries, 23 local radio stations and 24 TV stations. This gives Palestine one of the highest concentrations of radio and TV stations in the world.
Economic and Institutional Regime
The overall institutional and economic regime in Palestine is still in great need of development and improvement. This is primarily related to the occupation and the lack of political and economic stability in the region. This means development planning and implementation efforts are of little use. The banking system in Palestine is considered a strong and stable system that has managed to stay afloat through turbulent times. There are currently 22 banks operating in the Territory with a total of 153 branches servicing main cities and towns. Total banks’ assets by the end of 2006 reached US $5573.5 million, total credit facilities reached US $1903.3 million, foreign investment by banks amounted to US $2424 million and total deposits reached US $4662.7 million. The banking system has no shared infrastructure for the payment amongst banks and no private credit information exists in Palestine. Banks in Palestine are regulated and monitored by the Palestinian Monetary Authority, which serves as the central bank but without the power to issue a national currency.
The Palestine Securities Exchange (PSE) was established in 1995 to repatriate long-term capital from the Palestinian Diaspora. Today, 37 companies are listed in the exchange, covering a wide array of economic activities ranging from banking, insurance, services, etc. Eight licensed brokerage firms with offices in main Palestinian cities have been approved by the exchange to deal with stocks. PSE uses the latest technology in managing and operating all trading, clearing and settlement operations. The Palestine Capital Market Authority supervises and regulates the stock exchange. All in all, PSE is characterized by low liquidity, infrequent trading, less informed investors and relatively high volatility.
The signing of the Paris Protocol in 1994 set the procedures and regulations governing economic relations between Palestine and Israel, and between Palestine and the rest of the world. The PA has adopted the principles of free trade as the cornerstone of its economic policy as stated in Article 21 of the Basic Law. In its efforts to strengthen its economic ties with the international community and to promote economic and trade development, the PA has conducted trade negotiations with a number of countries including USA, Canada, EU, EFTA, Egypt, Saudi Arabia and Jordan. Unfortunately Palestinians did not benefit from the trade agreement because of the Israeli restrictions on the movement of goods and people. According to the World Bank, over the past six years imports of goods and services represented approximately 70% of GDP, while exports of goods and services represented between 15% and 20% of GDP.
The Palestinian legal system is influenced by multiple legal systems which have affected the entire political and legal structure in Palestine. Most notable of these are the English Common Law, Ottoman ruling, and Jordanian and Egyptian laws. The court system in Palestine is divided into regular, religious and special courts, in addition to the Supreme Court of Justice. The Court of Appeals in Ramallah is deemed to be the highest regular court and its decisions are binding to lower courts. In the Gaza Strip, the Supreme Court is the highest regular court. The Palestinian Legislative Council (PLC), which is comprised of 132 elected members, is the first elected body in the history of the Palestinian people. As of Nov. 2005, 85 laws have been passed and signed into law.
The PA has a number of development plans and investment promotion schemes including the Palestinian Development Plan, which covers medium-term economic development strategy; an investment promotion strategy, which is comprised of three main elements: investment incentives, industrial estates and free zones and investment guarantees.
The perception of corruption in the Palestinian Territory is similar to that in other developing countries. According to Transparency International Perception Index -2005, Palestine ranks 107 out of 159 countries. Corruption is perceived to be gravest in the public sector. Nonetheless, the PA has set in place a number of measures and mechanisms to fight corruption including enacting the Law of Illicit Enrichment No. 7 of 2005, the establishment of the Supreme Audit Commission in addition to allowing Civil Society organizations such as the Coalition for Accountability and Integrity (AMAN) to report on corruption.
The study provides a number of recommendations that are tailored to each and every KBE pillar in Palestine. This includes developing a strong leadership that understands the role of ICT in the development of the country, improving the overall environment for the flourishing of entrepreneurship , improving the education system by moving away from rote-learning and moving into cognitive learning, putting in place the right framework to foster and promote research and development, eliminating duplication of research and increase cooperation amongst different research centers, regulating the telecommunications market and enhancing competition in the market.
KBE Pillars in Jordan
Jordan seems to be relatively better positioned to transform into a knowledge based economy compared to Palestine. The political stability in Jordan together with the right legal and institutional framework has given it a head start in the race towards KBE. The following is a summary of the main developments of the four KBE pillars in Jordan.
Human Capital Developments
Human capital indicators in Jordan are somewhat similar to those in Palestine although tertiary education in Jordan is more advanced. The majority (46%) of employed Jordanians have lower than secondary school education; while 17% of employed Jordanians have Bachelor degrees, 14% have secondary school education and 12% have an intermediate diploma. Jordan has the most literate population in the region; the literacy rate among those aged 15-24 was 99.1%. Expenditure on education amounted to 4.1% in public schools in 1999, this ratio increased to 4.4% in 2002. In fact, Jordan’s spending on educational institutions as a percentage of GDP is higher than that of OECD countries. As regards to secondary and tertiary education, the data show that 50% of Jordanians have not been educated to secondary school level. The data also show that enrolment in Arts and Science education is the dominant form of education in Jordan, followed by vocational training.
Tertiary education in Jordan in the last few years has witnessed a huge expansion: in 1990 there were only 4 public universities with 34,984 students and in 2006 the number of universities increased to 24 with a student population of 192,042. In addition, there has been an increase in the number of academic degrees offered in Jordanian Universities. The bulk of enrolment is in Humanities, followed by Science and Engineering and in third place come Mathematics and Computer Science. Graduate studies have also witnessed huge growth in the last decade as many Jordanian universities introduced new post-graduate programs in different areas of specialization.
Research and Development
Research and development is not in a much better situation than in Palestine. Jordan spends 0.4% of GDP on R&D and universities in Jordan contribute about one third of total expenditure on scientific research. The contribution of the private sector does not exceed 4% of the total allocated funds for R&D. These inefficiencies have resulted in a weak delivery system, which extends from technology generation to adaptation, use and commercialization and inefficient allocation of R&D resources. University research activities are primarily for promotional purposes focusing on quantity rather than quality, and there are limited funds available for academic research at the main universities in Jordan.
ICT Infrastructure and Infostructure
The telecoms market in Jordan is considered as one of the most liberal and competitive markets in the region. There are currently four mobile operators in Jordan; Fastlink, Mobilecom, Xpress Telecom and Umniah. In addition, there are two fixed line operators (Jordan Telecom and Batelco of Jordan). The number of fixed line subscribers was at 670,000 at the end of 2005 with a penetration rate of 12.2%. During the same period, there were 3.13 million mobile subscribers with a penetration rate of 57%. High speed internet services are currently provided by many ISPs with broadband internet at the center of the competition amongst ISPs. Current prices of ADSL services are still higher than those in Europe and Israel.
The percentage of individuals who use computers rose form 29.5% in 2003 to 35% in 2004. Internet users increased from 15.6% in 2002 to 17.5% in 2004. IT gross revenues reached US $440 million in 2004, up from US $170 million in 2001. IT students numbered 8000 at the university level and 5300 at the college level. Jordan also has a higher proportion of university graduates in technological fields than any other country in the region. Indeed, Jordan ranked 14th out of 110 countries for the number of engineers and scientists according to Global Competitiveness Report.
Economic and Institutional Regime
Jordan has a more developed economic and institutional regime compared to Palestine. The banking system in Jordan is one of the strongest banking systems in the region. Today, there are 13 commercial banks, 2 Islamic and 8 foreign banks operating in Jordan. The banking system is regulated and supervised by the Central Bank of Jordan, which is entirely government owned but operates as an independent and autonomous legal entity. The banking system in Jordan has witnessed significant improvement in all areas including e-banking. The majority of commercial banks offer e-banking services for individuals and commercial firms.
Amman Stock Exchange (ASE) was established in 1999 as a non-profit, private institution with administrative and financial autonomy. ASE is well-developed in terms of its financial infrastructure and regulatory oversight despite low market activity. The number of listed companies on the exchange increased from 161 in 2001 to 227 in 2006 and market capitalization increased from US $4,476.7 million to US $21,078.2 million during the same period. In addition to trading in stocks, ASE also trades in Treasury bills issued by the government, government bonds and corporate bonds.
The first constitution in Jordan was approved in 1948, and this was followed by a process of developing a national legal system to replace the old Ottoman system. The Jordanian legal system echoes its Ottoman heritage in the communal jurisdiction of the religious courts of different communities over matters of personal status. The civil court system follows the French model. Jordan has also enacted a number of laws and regulations aimed at fostering and encouraging economic development in the country. It has also enacted ICT related laws especially to deregulate the telecom market and establish a sound IT sector. Amongst such laws are: the National Intellectual Property Rights Law, privacy status and the status of the freedom of expression.
The study concludes by offering a number of recommendations particular to Jordan. These include: developing linkages between the human resource base, information infrastructure, and higher education and research institutes; creating a demand driven education system that focuses on individual needs; establishing institutions to encourage innovation and entrepreneurship; and mobilizing additional financial support to high-tech and future-oriented sectors such as IT and other knowledge-based fields.