1. The Impact of Settlements on the Future of the Israeli Economy “The Recognition of a Palestinian State and the Solution of Two States: Is There Room for Hope?” Barcelona, 11.06.2015 Dr. Roby Nathanson

2. Israel and West Bank

3. Settlements and ongoing conflict costs: Main direct costs: ‐Investment in structures and infrastructure ‐Security costs (Military and other) ‐Government support and subsidies (private&public) Main indirect costs: ‐A decline in foreign and local investments ‐A decrease in exports and economic and scientific cooperation due to boycotts Background

4. Main Objectives Accurate as possible estimation of: WB settlements annual costs (“extra expenditures”) Long term value of WB investments using the capital stock of buildings and public initiated housing construction Comparison of costs of settlements east and west of the defence barrier The possible costs of current and future boycotts

5. Data Diverse data sources: Macro’s settlements data Central Bureau of Statistics data: municipalities data files, construction data, localities demographics data Ministries and governmental agencies data: Finance, Housing and Construction, Settlements Division Unique datasets: housing prices data, investment incentives data

6. Methodology Wide array of technics: “Extra expenditures” Direct defence costs Only disclosed and validated data WB municipal support and national municipal support Creation of capital stock data from municipal tax and construction completions

7. Built Environment Residential:

8. Built Environment Non-residential:

9. Built Environment Total built stock (millions of NIS): Year Value of built stock, millions 2014 prices Total east of the barrier Total west of the barrier West Bank total Residential Business and hotels Industry and Agriculture Public institutions 1998 27,377.3884.53,361.14,648.59,185.627,085.736,271.4 1999 31,707.4897.63,410.04,761.810,273.530,503.340,776.8 2000 34,912.5944.13,418.24,852.211,080.533,046.644,127.0 2001 36,291.0948.33,445.84,947.712,040.533,592.345,632.8 2002 38,424.2954.83,453.95,049.412,857.435,024.947,882.3 2003 39,691.5979.83,469.85,121.413,647.135,615.549,262.5 2004 43,080.9999.43,504.05,179.714,690.238,073.852,764.0 2005 45,093.91,021.63,525.45,275.415,415.939,500.454,916.4 2006 49,025.21,027.63,559.95,380.415,536.943,456.358,993.2 2007 50,848.41,053.73,578.95,479.415,456.145,504.360,960.4 2008 56,213.11,061.63,597.85,540.716,230.050,183.266,413.2 2009 64,493.21,103.33,625.75,613.317,354.557,481.074,835.5 2010 75,518.31,121.53,629.35,699.118,997.966,970.385,968.2 2011 79,364.11,128.93,650.85,785.119,825.470,103.589,928.9 2012 87,558.21,145.03,714.65,953.821,323.677,048.098,371.6 2013 90,080.81,153.63,854.16,055.421,995.979,147.9101,143.8 2014 97,704.11,163.43,872.56,132.823,469.885,403.0108,872.8

10. Public construction Public initiative construction by district:

11. Public construction Public initiative construction by district: Year National total JerusalemNorthHaifaCenterTel AvivSouthWest bank 19950.540.30 0.171.260.010.871.67 19960.380.660.370.190.250.040.920.89 19970.290.320.340.070.300.000.720.84 19980.190.060.160.050.190.010.401.53 19990.180.120.160.090.120.050.361.22 20000.270.280.220.090.310.010.441.83 20010.140.020.190.020.170.000.330.49 20020.150.13 0.050.170.020.290.56 20030.130.090.150.050.170.000.190.64 20040.110.010.160.030.160.010.120.54 20050.110.160.100.020.120.000.190.45 20060.090.140.120.000.120.000.120.26 20070.080.110.120.020.080.000.110.30 20080.080.050.080.010.110.000.100.36 20090.070.040.120.030.080.000.090.28 20100.090.040.110.060.150.000.130.05 20110.120.09 0.050.150.000.350.04 20120.110.170.160.060.110.000.170.05 20130.160.100.180.110.210.000.240.40 20140.110.150.110.140.150.000.100.12 95-2014 Average0.170.150.170.060.220.010.310.63

12. Direct cost - public Defence: Only budget items holding significant and direct linkage to WB settlements Increased national security expenditures between planned and actual – 19.8 billion NIS WB settlements defence costs more per ‎person, but cannot be analyzed‎ The total disclosed direct defence cost of the WB settlements is NIS 267.6 million per ‎year‎

13. Direct cost - public Municipality budgets: “Extra support” compared to other regions Total support per person of which: % of support of total income Support for ‎education per ‎person Special ‎grants per ‎person WB average 3,7621,64845445.8% East of the Barrier average 5,9602,73191054.1% West of the Barrier average 3111132731842.2% National total (without WB) 2,2841,2679028.5% Average extra expenditure1,425358357 Average extra expenditure East of the Barrier 3,6781,465820 Total extra expenditure 526,652,682135,901,898129,408,295

14. Direct cost - public Municipality budgets: Comparison to other parts of the country District Total support per person of which: % of support of total income Support for ‎education per ‎person Special ‎grants per ‎person West Bank3,7621,64845445.8% Negev3,2031,77612234.9% Galil (North district)3,0291,4898340.3% South (except Negev)2,3331,4394730.4% Jerusalem1,8468981627.3% Tel Aviv1,7661,0961019.2% Haifa2,5901,21144831.3% Center1,9321,2641924.1% National total2,2841,2679028.5%

15. Direct cost - public Development: Settlement Division – establishment and support to rural localities. All 122 localities in central region are WB settlements MOHC – new construction support budgets to specific settlements (Ma'ale Adummim ‎and Geva Binyamin) Total government expenditure on development of WB settlements was NIS 253.6 million in the 2014 fiscal year

16. Direct cost - private Households: Housing support– new construction subsidy ( reduced land development costs) – NIS 22.9 million per year Income tax – an inclusion of WB settlements into the list of localities eligible to income tax deduction (currently on hold)

17. Direct cost - private Business (“Law for the Encouragement of Capital Investments”): Investment incentives– incentives for investment in certain regions of the country, WB firms got NIS 931.8 million between 1992-2012. In recent years annual support of NIS 11 million per year Corporate tax – decreased corporate tax to WB located firms. A total subsidy worth NIS 18 million‎ annually

18. Indirect cost Possible impact of boycotts: Up to the present time, they have not had a significant impact on the Israeli economy Not likely to have a significant impact in the near future Israeli’s economy is highly dependent on exports and foreign investment (exports are 34.5% of Israel's GDP) Past and current global economic sanctions show that Israel is in threat

19. Total cost Annual extra cost: Section East of the barrier West of the barrier Total Public support Defence61,155,841206,429,159267,585,000 Municipalities budgets 299,146,263227,506,420526,652,682 Development57,957,321195,632,679253,590,000 Total418,259,425629,568,2571,047,827,682 Private support Households5,223,77017,632,63022,856,400 Business6,646,12122,433,72229,079,843 Total11,869,89040,066,35351,936,243 Indirect costsBoycotting--- Total430,129,315669,634,6101,099,763,925 Total extra cost per person5,2882,4393,090 Total extra cost per household23,42610,80413,689

20. Future scenarios Four plausible future scenarios: “Managing the conflict"‎ - business as usual Partial unilateral withdrawal – withdrawal only from highly dense Palestinian areas Unilateral withdrawal to the security fence line – evacuation of around 77 of 130 settlements An agreed withdrawal to the 1967 borders – a complete withdrawal except major settlement blocs, with agreed and mutual land swaps

21. Settlements Expected Future

22. Survey - Introduction The survey was conducted among people representing the population east of the barrier and examined the following: ▫Perceptions about the feasibility of a peace agreement ▫Expectations about the fate of the settlement in case of an agreement ▫Reasons for living in the settlement ▫Perception of quality of life in the settlement ▫Main advantages and disadvantages in the settlement ▫Importance attached to receiving various services in the settlement ▫Willingness to evacuate in the case of an early evacuation- compensation program or a post-agreement evacuation ▫Factors likely to promote willingness to evacuate ▫Preferences about residential locality in the event of an evacuation

23. Main Advantages Attributed to the Settlements

24. Main Disadvantages Attributed to the Settlement

25. Willingness to Evacuate

26. Willingness to Evacuate Early in an Evacuation-Compensation Program 27% of the settlers east to the barrier, representing some 24,000 residents, expressed willingness to evacuate early. (will definitely agree or think they will agree) ▫Willingness is especially high in the Jordan Valley (45%), Ariel (44%) and Secular Settlement (50%) 27% of the responders assessed that at least half of the residents in their settlement would be willing to evacuate early ▫10% thought that most of the residents would be willing to move ▫6% thought that about two-thirds of the residents would be willing to move ▫11% estimated that approximately half of the residents would be willing to move

27. Willingness to Evacuate Early Main variables explaining the difference in willingness to evacuate early ▫Religious affiliation ▫Political positions on the left wing - right wing continuum ▫Assessment of the interviewee with regard to the proportion of the residents in the settlement likely to be prepared to evacuate The share willing to evacuate early is relatively stable compared to the 2008 survey

28. Factors Likely to Promote Willingness to Evacuate

29. Top five factors among the religious and the ultra-Orthodox settlements 1.Suitable replacement housing for the family (17%) 2.Integrating children into education institutions (16%) 3.Moving the entire settlement to an are under Israeli sovereignty (16%) 4.Suitable employment (16%) 5.Compensation for loss of jobs/business (12%) Top five factors among secular settlements 1.Appropriate compensation level (64%) 2.Suitable replacement housing for the family (55%) 3.Suitable employment (54%) 4.Compensation for loss of jobs/buisness (52%) 5.Assurance of a pension plan (49%)

30. Locality Preferences in the Event of an Evacuation Respondents who Expressed Willingness to Evacuate Depends on Compensation Sum Think They Will Agree Will Agree Location 28 18 12 Judea and Samaria 31 38 22Greater Jerusalem 8 8 6South / Negev / Arava 14 12 17Center / Sharon 2 3 5North and Galilee 18 35 43 Within the Green Line (No Location Specified) 1076Indifferent * Total is above 100% since some respondents mentioned more than one area

31. Conclusions Over the past 47 years an estimated NIS 108.9 billion were invested in WB civilian buildings WB settlements enjoy more publicly initiated housing construction – 0.63 sqm. per person compared to 0.17 sqm national average Annual governmental support is around 1 billion per year or NIS 13,689 per household Governmental support to WB municipalities is higher than other regions of the country including prioritized areas

32. Conclusions East of the barrier settlements getting higher support and “extra cost” than those west of the barrier – NIS 5,288 compared to NIS 2,439 There are more costs to be analyzed - further research is needed Future scenarios are highly relevant to the assessment of future costs A Government Plan for Evacuating Settlements is needed due to the willingness of many settlers to participate in an evacuation- compensation program