One solution to Palestine's economic problems? Export bits and bytes

In the West Bank’s languishing economy, where harsh restrictions on the movement of goods constantly impair local industry, the emerging (and wireless) IT sector is invaluable.

The technology sector, which simply requires the Internet and a working telephone line, is free of the restraints that most other Palestinian industries experience. Businesses from hospitals to grocers are impacted by the intense border controls Israel implements. Goods coming into the West Bank are subjected to extensive checks that can make their arrival unpredictable at best, deeply affecting the stability of various industries.

However the IT sector is relatively immune to such impediments. And despite ongoing conflict in the region, it is garnering investors.

IN PICTURES: The West Bank: life under the PA

Since 2009, an estimated $78 million has been pumped into the Palestinian IT sector, resulting in a 64 percent increase in foreign business. Cisco Systems alone invested $10 million in the industry to support training programs and attract future investors. The net result has been continuing growth in the sector from 0.8 percent of GDP in 2008 to 5 percent in 2010 and employment for more than 2,500 Palestinians.

The industry is being driven by young repatriated entrepreneurs who have faith that the virtual nature of the industry makes it resilient to border controls. Companies like ASAL, Exalt, and Lionheart form the pillars of the growing IT industry stimulating jobs in software outsourcing, telecommunication development, and manufacturing equipment.

However, the industry is still in an infantile stage, with the largest of Palestinian IT companies only employing about 250 people. Amid the public sector's fiscal crisis, the industry has proved to be more resilient than most of other industries in the private sector.

The public sector’s decline, however, exerts a huge pressure on the private sector to perform. And dwindling foreign aid over the last two years has left the territory in an increasingly chaotic financial position. Countries such as the United Arab Emirates and Qatar have substantially cut back their financial assistance to the Palestinian Authority. As of 2011, the UAE had cut aid from an annual $174 million to $42.5 million.

However, the technology sector has downsides as well. Despite massive growth rates, it cannot accommodate the more than 2,000 graduates in technical subjects annually. The industry's total revenue is only about $6 million a year; Israel’s technology industry rakes in about $1.6 billion annually.

World Bank reports concluded that the Palestinian Authority is currently too dependent on foreign aid to meet the economic requirements of statehood. The statement raises the question of whether more "borderless" jobs could boost the private sector in helping to alleviate the economic crisis.

Could Ramallah in the West Bank be the next Bangalore, India?

• This article originally appeared at Global Envision, a blog published by Mercy Corps.

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