Summary

The depressed Palestinian economy continued its downward path in 2005 as a direct consequence of the severely restrictive measures taken by the Israeli Army regarding mobility of people and goods. Furthermore, the Palestinian consumer continued to be subjected to the same import and excise tariffs as his Israeli counterpart. With an average income that is less than one fourteenth of that of the Israeli, the Palestinian consumer continues to be severely disadvantaged by these tariffs. This factor, coupled with a severely handicapped Palestinian security-force largely explain the significant growth of the activities of cigarette smugglers - who now control some 25% of the market.

Early in 2005, the Palestinian Excise Authority took several measures to counter cigarette smuggling. These included arrangements for the legal sale of locally produced tobacco and making available to the consumer a legal alternative to smuggled cigarettes. These measures succeeded in raising the unit sales of both locally produced as well as imported cigarettes. Consequently, there was an increase in the excise income of the Palestinian Authority in 2005. These results though encouraging need to be augmented by further measures currently under consideration.

Company sales in 2005 increased both in value and volume despite occasional severe disruptions imposed by closures of the Gaza Strip and the continual flooding of the market with smuggled cigarettes. The financial results for the year corresponded well with those for 2004 in terms of overheads and cost of finance. A moderate increase in raw material costs reflected fluctuations in world market prices. The reduced income from investments in other Palestinian Companies was a measure of the precarious state of the economy. Real and meaningful improvement can only be secured through a genuine progress in the political process.