Gaza’s Economy


All eyes are on Gaza. What the late Labor Minister Yisrael Galili in 1971 termed a great experiment in “Zionist socialism” is coming to an end with the evacuation of some 8000 Israeli settlers and their supporters from the occupied Gaza Strip. News channels, Arabian based ones, are transfixed in what seems to be a tumultuous struggle between Israel’s fundamentalist right-wing and Prime Minister Ariel Sharon’s apparent pragmatic plan. Others instead argue that the real struggle is only going to emerge later when it remains to be seen if the Palestinian Authority (PA) can maintain control over its newly liberated areas in the most desolate and desperate corner of the Palestinian Territories. The reality, however, is that Sharon has already won, regardless of the outcome.

When Ariel Sharon announced his “Disengagement Plan” in early 2004 he stunned not only Israeli society but also the world community as well. The “Father of the Settlements” who had so shied away from peace negotiations during the first four years of the Intifada was now making a bold unilateral move. The term for “disengagement” in Hebrew, Hitnatkut, also can mean “cutting off,” and with his plan to dismantle the settlements in the Gaza Strip and redeploy the Israeli army to its borders, Sharon is in fact cutting off the Palestinians from the peace process. As Jerusalem based reporters Jerrold Kessel and Pierre Klochendler put it, Sharon’s method relies on “managing the conflict with the Palestinians much more than it is about actually resolving the conflict.”

The critical foundation lurking within Sharon’s plan, which remains obscured by the recent internecine clashes between the Yesha Council and the Israeli police, is that he has discharged himself of any concerns about Gaza’s fate: regardless if the PA experiment succeeds or fails in Gaza, Sharon has won. Domestically, Sharon has at least forestalled Israel’s demographic dilemma by cutting off 1.3 million Palestinians from the rest of Israel and he has appeased the Left, who often put the blame on Israel’s growing poverty on expenses for the settlement project. Internationally, Sharon is being hailed as taking a critical move towards for peace, and, as the Israeli U.N. Ambassador Dan Gillerman predicts, Israel “bashing” in the UN will come to an end. As for the Palestinians, former MK Amnon Rubinstein, a supporter of the plan, has admitted that Gaza will “cease to be Israel’s responsibility in the eyes of the world. This would be a huge advantage, an existential advantage” Essentially, either Palestinians will be preoccupied with developing Gaza as settlements in the West Bank become permanent, or Gaza will falter and Sharon will be hailed as having proven that Palestinians are incapable of self-rule.

It is true that in his speech to the Israeli people on the evacuations in Gaza on August 17, Ariel Sharon made stark references to the horrible conditions Palestinians there live with, something almost unheard of coming from the man who personally oversaw much of the demolition of the region in campaigns during1955 and 1956. But it is important to recall that Sharon is a master of deception when he has a unilateral policy in mind. As Defense Minister under Menachim Begin in 1982, Ariel Sharon systematically lied to his own boss and fellow Cabinet Members about the aims of the Israeli invasion of Lebanon. Repeatedly Begin’s Cabinet found itself post facto approving actions already taken by Sharon, such as the penetration of Beirut, if for no other reason than to catch up with facts on the ground.

On the Palestinian side, much has been made of the potential political clashes between Hamas (who has already claimed credit for the Israeli pullback) and the PA. There are two simple scenarios for the short-term future of Gaza, one of chaos or one of orderly development. But even if the latter scenario emerges, Ariel Sharon will still have the upper hand, for many Palestinians see the “disengagement plan” as a move to not only placate the United States and European Union, but allows for a reassertion, if not expansion, of the Israel’s settlement plan in the West Bank. Indeed, even as settlers are being moved from Gaza, new “neighborhoods” in occupied East Jerusalem are springing up, while much of the West Bank is imprisoned in what Palestinians call the Wall of Racial Division. As Ghazi Hamed, editor of Gaza’s al-Resala, explains, “We will be worrying about mounds of garbage and trying to get investment, while [Sharon] carries on building a wall around Jerusalem.”

The PLO, which has developed into the backbone of the PA, has had great difficulty in making the transformation from a revolutionary movement into building a civil society. Often seen as archaic and hopelessly corrupt under Arafat (Thomas Friedman often opines that the second Intifada was as much a revolt against the Palestinian old guard as it was against Israel), Hamas and Islamic Jihad have gained immense amounts of popularity. While the PLO’s Fatah paints slogans around the West Bank proclaiming that they have been “fighting the struggle for 40 years,” the Islamic parties are expected to do very well in next January’s Parliamentary elections. This is especially so in Gaza, which has seen a skyrocketing rise in unemployment and poverty during the last five years.

While Israel is retreating from Gaza with a ‘hands-free, care-free’ attitude, the United States has placed its bets on economic development to solve Gaza’s political ills, and has made former World Bank director James Wolfenshoen its head envoy. But while Israel has withdrawn its forces from within Gaza, they still remain in total control without; giving lie to the illusion that the occupation in Gaza has ended, Israel remains in control of Gaza’s economic future ­ and Sharon doesn’t seem to care.

Gaza’s Economic Future

Sharon’s unilateral policy on Gaza has remained conspicuously vague in delineating what powers and autonomy it will return to the Palestinian Authority. Only with pressure from the Quartet and the World Bank have the Israelis hinted at what areas they are willing to ease restrictions on. Of greatest concern to the economic health of Gaza is external access to goods, namely the reorganization of land borders, the re-opening of Gaza’s air and seaports and the future of the Israeli-Palestinian customs union.

The economic situation of the Gaza Strip is bleak. Even before the recent Intifada and ruinous Israeli invasions and demolitions, Gaza’s post-Oslo economic outlook was only moderately positive. The limited autonomy given to Gaza through the Oslo Accords placed it in an economic orbit wholly dependent on Israel. In addition to having to purchase all necessary resources non-competitively from the occupying power, Israeli goods were given preferential treatment, primarily at the expense of Palestinian goods from the West Bank. Essentially, Israel has established what one scholar has described as lasting “predatory colonial economic relations” with the Palestinian Territories, which were only solidified in the Oslo Accords and remain in effect today.

Gaza’s vitality was almost completely squelched during the four and a half years of the Al-Aqsa Intifada, where poverty and unemployment soared while the Israeli army claimed the lives of thousands and engaged untold physical destruction. In urban environments where already almost half of the population are refugees, a further 25,000 homes were either totally or partially destroyed by Israeli operations. Furthermore, Israel’s repeated internal and external closures devastated the economy, pushing poverty past 65% and unemployment to over 35% (unofficially as high as 70%). Finally, The World Bank asserted that while the ceasefire and end to closures are clearly beneficial to Gaza’s recovery, the outlook for some 16% of Palestinians living at mere subsistence levels is not likely to change.
In order for Palestine to (re)build its economy, it needs to attract foreign direct investment. This has been exacerbated by Israel’s announcement that it intends by 2008 to end its long-time policy of allowing Palestinian workers into Israel. Confidence is critical to long-term investment strategies and Sharon’s plan clearly does not do enough to bring back the full confidence and hope that Gaza attracted in 1995. The Palestinian Authority estimates that since the start of the Intifada, private-sector investment fell by over two-thirds. Outside assistance will prove critical in addition to what the G8 recently pledged for the Palestinian Territories. Yet there are still fundamental steps Israel could take to help bring in the private investments that are critical for Gaza’s long-term success.

Israel’s border policies are key, not just to investor confidence, but to the very sustenance of the Palestinian Territories. Currently, Israel has agreed to revamp the Erez and Karni crossings into Israel, promising new high-tech security checks that should expedite cargo transit (paid for by USAID). This is a first step, but not enough to win the full confidence of those who may wish to do business in Gaza. The World Bank has urged Israel to duplicate these facilities so that should a security incident warrant the closure of one crossing, goods can still quickly make their way though. In addition, anyone operating in these situations would expect proper arbitration and dispute resolution mechanisms if, say, produce spoiled because of delays. Israel so far has not agreed to establish these with the Palestinian Authority.

Furthermore, the ‘back-to-back’ system of transportation that Israel has forced the Palestinians to operate with only exacerbate costs and time. While the disengagement in Gaza will eliminate the need to transfer goods between vehicles at checkpoints internally, this duplicitous system will remain at the borders: vehicles from Gaza cannot enter Israel or the West Bank and vice versa. Without a further opening of Gaza’s borders, few investors would find it sensible to do business in Gaza. As Akiva Eldar summarized in a recent editorial, “a Palestinian worker who is detained three hours at the barricade cannot compete with a Thai worker who lives in his boss’ storage room.”
In addition to a loosening of controls over Gaza’s borders, it is also imperative that Israel consents to the re-opening of Gaza’s air and seaports. The reopening of Gaza’s airport, which was heavily damaged by the IDF in the recent conflict, has not progressed, and Israel has hinted that it will only allow helicopter traffic in the near future, impairing the potential for business contacts from neighboring countries to have easy access.

A final major point of contention is Israel’s announced intention of abrogating the “quasi”customs agreement with the Palestinians in the Gaza strip. The Palestinian Authority has rejected this, noting that it would not only be damaging to economic prospects in the immediate future, but would also further alienate the Gaza Strip from the West Bank and East Jerusalem. The present arrangement gives Palestinian goods an edge in Israeli markets while generating critical tax revenue for the PA. The World Bank has warned that while the current customs agreement should not remain in place for long, it is essential to Gaza in the short term for getting its agricultural and industrial economy back on its feet and ending the union at this point would greatly increase transaction costs for Gaza-West Bank commerce.

Dr. Aharon Kleiman of Tel Aviv University further stressed that an abrogation of the quasi-customs union with has the potential to turn a future Palestinian nation into a bifurcated state. The creation of two entities with separate economic arrangements could fracture Palestinian unity. This would be a severe blow to Palestinian nationalism and further push Gaza into Egypt’s economic orbit while the West Bank would likely orient itself more towards Jordan.

Finally, there is a need for a rapid and direct link between Gaza and the West Bank. With Sharon’s unilateral move for disengagement, this subject has naturally not been fleshed out in negotiations. Potential options that take Israel’s security concerns into consideration involve either a raised or sunken highway or a rail link connecting the two territories. Such a move would intertwine the two territories economically and allowing price convergence and boost internal markets. Finally, the link is clearly essential for a unified Palestinian national identity.

At the Sharm El-Sheikh summit between Israeli and Palestinian leaders, PM Sharon declared, “together we can ensure our people’s lives of freedom and stability, prosperity and peace.” While his rhetoric might be in the right place, it is unfortunate that Israel’s current steps towards peace remain unilateral directives with only minimal cooperation with the Palestinians. Former MK Avraham Burg, a founding member of Peace Now and whose father served in the Begin Cabinet with the current Prime Minister, has termed the whole escapade a “vast fraud”. The redeployment plan is a thinly veiled attempt for Sharon to solidify Israeli control over the West Bank, maintain an obfuscated occupation of the Gaza Strip and to splinter what should be a united and free Palestinian nation. No matter what, Sharon has taken the initiative and for the old warrior it means he has won this round.

BENJAMIN GRANBY works for the Palestine Monitor in Ramallah, West Bank, is a former human rights worker in Gaza City and is author of the forthcoming, Welcome to the Bethlehem Star Hotel from Garrett County Press. He can be reached at: