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Economic
Deterioration in the Gaza Strip
Sara Roy
On February 25, 1996, following several Hamas suicide bombings
in West Jerusalem and Tel Aviv, Israel imposed a heightened closure
on the West Bank and Gaza Strip.1 This most recent heightening of
the closure has severely damaged the already precarious economy
of the Gaza Strip and caused immense hardship and suffering to the
local population. The overwhelming majority in the Gaza Strip have
been left with no source of daily income. Many can no longer adequately
feed their children. The struggle--no longer against Israel or even
the Israeli occupation--is now against hunger and humiliation.
While these problems emanate, in part, from this heightened closure,
the emergence of Palestinian Authority (PA)-controlled monopolies
has also taken its toll on the local economy. Seriously inflated
prices have made it difficult for families to purchase even the
most basic of food commodities.
In order to keep the PA bureaucracy and the "peace process" afloat,
the United States in particular and the donor community in general
appear willing to tolerate these monopolies and the closure and
their destructive impact on the local economy. Ironically, by its
tacit support for the economic and political status quo, the donor
community is thwarting the very economic objectives they claim to
be pursuing.
Economic Trends
Perhaps the most devastating effect of the heightened closure has
been a dramatic rise in unemployment levels in the West Bank and Gaza
Strip. Because the closure restricts the movement of all people (and
goods) in and out of the Gaza Strip and West Bank, as well as movement
within the West Bank itself, workers from these territories have been
unable to reach their places of employment. According to the Palestinian
Ministry of Labor, unemployment in Gaza has increased from 50 percent
to 74 percent (and from 30 percent to 50 percent in the West Bank).[2]
Before the heightened closure, 22,000 Gazans (down from 80,000 in
1987) and 26,000 West Bankers had permits to work in Israel.[3] Through
most of March, almost all of these 22,000 were unemployed. On April
1, 3,000 Gazans over the age of 45 were given new permission to enter
Israel to work in agriculture. According to Israel's Ministry of Defense,
only 12 of these 3,000 actually found work.[4] In March, the Israeli
authorities had imported an average of 400 Thai workers per day to
fill jobs left vacant by Palestinians.
Losses from unemployment amount to $1.04 million daily for the
Gaza Strip alone--$750,000 from lost wages in Israel and $290,000
from lost wages in local sectors.[5] The Palestinian Bureau of Statistics
(PBS) estimates that from February 25 to April 4, the Gaza Strip
and West Bank lost $78.3 million in wages and income.[6] At present,
some 7,000 Gazans hold permits to work in Israel, 2,000 of whom
work in the Erez industrial zone inside Gaza. Permits are restricted
to men 40 years of age and older. The possession of a work permit,
however, does not guarantee work. Given that each worker supports
an average of seven people, at least 600,000 people in Gaza (out
of total of one million) are presently in desperate need of income.
One clear indication of this need is the reemergence of child
labor in Gaza. Today, children work as roadside peddlers well into
the late evening. In middle class neighborhoods of the West Bank,
some people have begun to wander from house to house selling televisions
and VCRs to pay their rent. Others have returned medicines to local
pharmacies to get money to buy food. Many merchants in the Gaza
Strip and West Bank now sell some goods at half price. Banks have
reported unusually large withdrawals of savings, which people are
using to cover lost income. Some branches of banks in the Gaza Strip
reportedly have closed due to the large demand for money.[7]
Another deleterious effect of the closure is the paralysis of
commercial activity. Prior to the heightening of the closure, approximately
700 trucks crossed the Gaza-Israel border daily. By early April,
the number had dropped to seven or eight trucks daily.[8] By early
May, the number had increased to 600.[9]
For local agriculture--a mainstay of the economy--the closure
has been particularly damaging. Agriculture depends upon the export
of 70 percent of its produce, including citrus, other fruits, vegetables
and flowers. The first quarter of the year (during which time the
closure was tightened), is the peak harvest season for strawberries,
cut flowers and produce in Israel, the West Bank and Jordan. It
is also the time when citrus is shipped to European markets. In
March, citrus exports had dropped to $440,000 compared to $4 million
in the last quarter of 1995 and $2 million in the first quarter
of 1996.[10] No citrus products from the Gaza Strip entered Israel
or the West Bank in March.
According to the Palestinian Ministries of Agriculture and Planning
and the Gaza Chamber of Commerce, the closure has resulted in a
direct daily loss to citrus producers of $1.05 million in addition
to a one-time loss of $1 million.[11] The agricultural sector, moreover,
employs between 15,000 and 30,000 persons depending upon the season,
many of whom had no work for almost the entire month of March. Similarly,
losses to the dairy and meat sector are estimated to be at least
$3.4 million.[12] The Palestinian Ministry of Agriculture indicates
that by the end of March 1996, egg and milk production had fallen
by 50 percent and 40 percent of the monthly average respectively,
resulting in a dramatic increase in egg and milk prices.[13]
The Gaza Strip's already enfeebled industrial and manufacturing
sector is now in deep crisis. Israeli restrictions on the export
of industrial products and the import of essential raw materials
have shut down at least 157 local factories in the Gaza Strip, displacing
upwards of 2,000 workers.[14] The Gaza Strip, for example, requires
an average of 3,000 tons of cement daily but received only 300 tons
in the first 23 days after the February closure, bringing the construction
sector to a virtual halt and idling at least 16,000 workers.[15]
During the last week of March, half the necessary volume of cement
entered Gaza. Other materials such as gravel, plaster, and iron
were also in very short supply. Although the situation has improved
since March, industrial and manufacturing sectors remain in crisis.
The fishing sector, which employs 3,000 Palestinians, has suffered
as well. On March 8, the Israeli authorities terminated access to
the sea, prohibiting local fishermen from fishing in the zone designated
in the Cairo Agreement, which guarantees access up to 20 nautical
miles from the shoreline of the Gaza Strip. Three days later, the
authorities allowed fisherman to work in an area limited to six
nautical miles from the shore. However, several reported being shot
at by Israeli gunboats as they passed only three miles. By the end
of March, fishing was officially permitted up to 12 miles. Moreover,
nets put out to sea on March 7, one day before sea access was closed,
could not be retrieved leading to an additional loss of $500,000.[16]
Gaza has also experienced a shortage in its basic food supply
since all such foodstuffs are imported from Israel. By the end of
March, flour shortages created a serious crisis. The Palestinian
Ministry of Economics estimates that the Gaza Strip requires a daily
average of 275 tons of flour. In the first 28 days of the heightened
closure, only 3,114 tons were permitted to enter Gaza or 111 tons
daily (40 percent of the total requirement).[17] The Palestinian
Authority then imposed a ration system forcing Palestinians to wait
daily for hours, sometimes overnight, to obtain their share. The
same problem existed for sugar, the average daily consumption of
which is 100 tons (3000 tons monthly). During the first month of
the February 1996 closure, the Gaza Strip received no more that
313 tons or 11 percent of total consumption needs.[18] Similar shortfalls
also occurred in the supplies of rice, butter, oil, salt and tea.
By the end of March, the volume of basic food commodities entering
Gaza was approaching sufficiency but was still below pre-heightened
closure levels.
The Palestinian Bureau of Statistics estimates that from February
25 to April 4, when the closure was at its tightest, total direct
losses to the Palestinian economy were $244.3 million.[19] The Gaza
Strip's economy alone has been losing at least $3 million daily
while the Palestinian Authority has been losing approximately $1
million per day in VAT transfers, customs duties, and so on. Indeed,
Palestinian economic activity is estimated to have dropped by 60
percent since the heightened closure began. According to the International
Monetary Fund (IMF), "The fiscal outlook... is troubling; unless
the fiscal position is under control, prospects for private sector
development... will remain poor."[20] The budget deficit--projected
in January 1996 at $75 million for the year--is now, due to the
heightened closure, estimated to reach $182 million.[21] For the
PA to continue functioning, a larger than expected amount of international
assistance will be used to cover the growing deficit. This will
leave proportionately less for development work.
From 1994 to 1995, per capita GNP in the occupied territories
fell by eight percent and is expected to fall an additional 19 percent
in 1996.[22] Before the heightened closure, official Palestinian
and US sources estimated that between 14 to 25 percent of the population
in the occupied territories were living at or below the poverty
level, the highest percentages being in the Gaza Strip, where per
capita GNP stands at $750-$1000.[23] The hardest hit are the poor
and the refugee camp populations. By January 1996, the number of
poor in the Gaza Strip exceeded the number of families receiving
assistance by 74 percent. According to the Palestinian Ministry
of Planning, furthermore, the average Gazan family was spending
almost 60 percent of its monthly income on food and only one percent
on health care and three percent on education.[24]
Given an unemployment rate of 74 percent, Gazans are now earning
less, while supporting many more people. As a result, the nutritional
status of children appears to be declining. As early as May 1995,
100 babies in Gaza City and Jabalya refugee camp were diagnosed
with marasmus, an extreme form of malnutrition.[25] The donor community
and the World Bank are responding with an additional emergency employment
program designed to employ 50,000 people in short-term jobs at $12
per day. By the end of April, 17,000 jobs had been created.[26]
The Gaza Strip, however, does not have the infrastructure, industrial
base or raw materials needed to generate the number of jobs required
to close the gap.
Monopolies
Another contributing factor to the Gaza Strip's deteriorating economic
situation is the emergence and institutionalization of monopolies
controlled by members of the Palestinian Authority. According to the
US Department of State, there are at least 13 known monopolies under
the control of no more than five individuals who are members of Yasir
Arafat's inner circle. These individuals--Mohammed Rashid, Mohammed
Dahlan, Khaled Salem,[27] Ramsey Khoury, and Omar Sarraj--have total
control over the import of such commodities as flour, sugar, vegetable
oil, frozen meats, live animals, concrete, gravel, steel, wood, tobacco
and petroleum. The latter two are supposedly state-owned enterprises
and the remainder are "private."[28]
The existence of these PA-controlled monopolies has precluded
fair competition by introducing market-distorting mechanisms. The
resultant price-fixing has artificially inflated prices, particularly
for basic food commodities, making it even more difficult for people
to meet their basic needs. For example, the price of a six kilo
sack of flour rose from $15 to $40 over the last year; the largest
rise (from $23 to $40) occurred between March and June, and in large
part was directly attributable to the flour monopoly.[29] For the
poor, this virtual tripling of the price of flour combined with
rapidly eroding income has transformed a basic commodity into a
luxury item. Indeed, the impact of the flour monopoly is also revealed
in the fact that the price of flour is higher in Gaza than in the
West Bank where monopolistic control is far weaker.
These monopolies demonstrate how the Palestinian Authority is
taking advantage of a deteriorating situation. In another example,
the Israeli government agreed to ease the closure at Sufa, a crossing
point near the Rafah border, where industrial goods and raw materials
often enter the Gaza Strip. In particular, Gazan importers of gravel
were anxious to increase their inventory and it was through Sufa
that these importers had been able to avoid the gravel monopoly
established at Erez, the main entryway into the Gaza Strip. However,
since those individuals in charge of the gravel monopoly at Erez
had no control over the Sufa crossing, the Palestinian Authority
kept Sufa closed for an additional two weeks until monopolistic
control could be imposed there as well. The price of gravel has
increased from $15 per metric ton to $30 per metric ton from January
to July.[30]
These PA-controlled monopolies generate considerable revenue.
Official figures could not be obtained but profits are believed
to be between $100-$400 million per year.[31] According to US State
Department officials (who are fully aware of the structure, operations
and revenues of the monopolies), monies from the monopolies are
deposited in five different Arab and Israeli banks and used in large
part, to pay the salaries of police and other agencies, which donors
no longer finance. Prior to the heightened closure, the PA's draft
budget indicated a recurrent expenditure of $147 million for the
salaries of 27,000 police officers.[32] It follows that, if monopoly
revenues are indeed paying these salaries, the monopolies are generating
considerable profit.
The revenue accrued by the monopolies effectively amounts to a
transfer of income from the poorer economic classes to a new economic
class that uses profits to help subsidize the PA apparatus and,
most likely, for itself. This new economic class, which has emerged
in the last two years, benefits directly from harsh Israeli policies
and the economic constraints imposed. However, unlike the past,
this economic class has political power.[33] This power, in turn,
derives from maintaining the status quo in collusion with Israel,
and according to the constraints imposed.
Monopolistic control over basic commodities also creates a strong
disincentive to foreign investors, and undermines activity in the
private sector, the domain with the greatest potential for initiating
economic development. Gaza's (housing) construction and contracting
sector--the only indicator of economic growth over the last years,
and one to which the donor community has consistently pointed as
a tangible benefit of peace--is now in a state of decline since
the monopolies and the closure have made the costs of doing business
prohibitively high. Some local contractors operate at a loss while
others have completely shut down.[34]
Political Trends
The monopolies have generated considerable rage among the local population
and there has been some limited protest. Yet, the widening gap between
the Gaza Strip's acute suffering and this limited protest suggests
three problems: the existence of an increasingly repressive regime
opposed to dissent, a population too debilitated to challenge this
regime, and a separation of national issues from their economic and
social counterparts. The old political order in Gaza is gone. Traditional
sources of political accountability, mediation and appeal are disappearing
with little institutional replacement. The PA is increasingly seen
as corrupt, dysfunctional and lacking credibility. Political power
is divided far less along factional, ideological and nationalist lines
than along positional lines--for or against Arafat's regime, for example--with
direct correlations to social class.[35]
At the same time, the newly-elected legislative council is emerging
as the only institutional source of accountability willing to challenge
a range of PA infractions. One reason for the popularity of the
legislative council appears to be the growing disdain for the president
and his policies and a sense among legislators that they must be
more accountable to the people than to Arafat.[36] On a number of
occasions, the council has voiced its dissatisfaction with PA activities,
including Arafat's violations of procedural rules in the council;
the existence and malpractice of monopolies (naming Khaled Salem,
a key advisor to Arafat, as a major profiteer); rejecting the threat
made by the Attorney General to strip four Islamic council members
of their immunity from prosecution after they publicly criticized
the PA's treatment of Hamas suspects; and challenging the arrest,
imprisonment and torture of Dr Iyad al-Sarraj, the commissioner
of human rights, who openly criticized the PA in the international
press.
The Netanyahu and Likud election victory appears to have had no
appreciable impact on Gazans. Unlike the Palestinian leadership,
which reacted with marked alarm, Palestinians generally saw the
victory as a continuation, albeit more honest, of the status quo,
and were far more concerned with feeding their families than with
perturbations of Israeli politics. Some Palestinians hope that given
Likud's ideological opposition to territorial separation, the new
government will substantially ease the closure, allowing up to 150,000
Palestinian laborers back into Israel. There were suggestions of
this by Prime Minister Netanyahu during his visit to the US in July.
Permitting these workers to return to their jobs in Israel is the
only way, in the short-term, to mitigate further economic damage.
The more likely scenario, however, is the continuation of the
heightened closure given Israeli security concerns, the cornerstone
of Likud's political campaign. The closure performs another critical
function: by placing constant economic pressure on the PA, it forces
Palestinian negotiators into accepting short-term economic improvements
as opposed to long-term territorial and political solutions. In
this way, closure has become an important feature of Israeli negotiating
strategies and one not easily relinquished. Hence, while Likud may
be opposed to separation, it is not necessarily opposed to bantustanization.
The comprehensive curfew on and closure of the Gaza Strip and the
West Bank during the Gulf war (which reduced the number of workers
entering Israel from 56,000 to 25,000[37]) was imposed by a Likud
government. Recent history has also shown that with each tightening
of the closure, the number of workers employed in Israel has rarely
returned to pre-reduction levels. The future looks grim. In the
meantime, as Dr al-Sarraj says, Palestinians in the Gaza Strip "keep
their heads down and eat."
Sara Roy is a research scholar
at the Center for Middle Eastern Studies at Harvard University and
author of The Gaza Strip: The Political Economy of De-Development
(Washington, DC: Institute for Palestine Studies, 1995). Endnotes
1 On March 30, 1993, Israel imposed a general closure over the West
Bank and Gaza Strip. Since that time, permits to enter Israel (including
East Jerusalem) have been required by all Palestinians living in the
West Bank and Gaza Strip. On several occasions, this general closure
has been heightened by completely shutting off all access into Israel,
cancelling all previous permits and issuing far fewer. See the recent
Human Rights Watch report, Israel's Closure of the West Bank and
Gaza Strip, Volume 8, Number 3 (New York: Human Rights Watch,
July 1996). A new element, internal closure, was introduced in the
West Bank with the Taba agreement of September 1995 and refers to
the separation of one Palestinian locality from another. See Graham
Usher, "Closures, Cantons and the Palestinian Covenant" Middle
East Report 199 (Spring 1995), pp. 33-37.
2 Palestinian Centre for Human Rights (PCHR), Closure Update
No. 4 Gaza, March 26, 1996, p. 4; and Office of the United Nations
Special Coordinator (UNSCO), Internal Document April 1996.
3 PCHR, p. 4. In addition, there were about 20,000 "illegal" workers
in Israel.
4 Reuters, April 2, 1996.
5 PCHR, p. 4.
6 Palestinian Bureau of Statistics (PBS), Statistics on the
Impact of the Closure 2/25-4/4/1996, Ramallah, West Bank, p.
8.
7 UNSCO, p. 9.
8 Ibid., p. 7.
9 Interview with US government official, May 1996.
10 US Department of State, Gaza Trade Statistics Show Impact
of Closure, Unclassified Document, May 1996.
11 UNSCO, p. 5.
12 PCHR, p. 2.
13 Ibid., p. 3.
14 Ibid.
15 UNSCO, p. 2.
16 Ibid., p. 3.
17 Ibid., p. 8.
18 Ibid.
19 PBS, p. 9.
20 International Monetary Fund, Internal Document, May 1996.
21 United Nations, Challenges During 1996 For the Development
Effort in the Gaza Strip and West Bank, 2nd Draft, Gaza Strip,
1 May 1996, p. 4. Other officials put the projected deficit at $300
million. Interviews with the director of the United Nations Development
Programme, Gaza City, May 1996, and US government officials, Tel
Aviv, May 1996.
22 Cited by officials of the World Bank at a conference entitled,
"The Palestinian Economy: Towards a Vision," Bir Zeit University,
West Bank, June 1996.
23 See Radwan A. Shaban and Samia M. Al-Botmeh, Poverty in
the West Bank and Gaza Strip (Jerusalem: Palestine Economic
Policy Research Institute, November 1995); and interviews with officials
in the US Department of State, Tel Aviv and Washington D.C., December
1995 and January 1996. The poverty level is defined as a per capita
income at or below $500-$650 per year.
24 US Department of State, Palestinian Price Statistics Show
Impact of Closure, Unclassified Document, November 1995.
25 Sara Roy, "Report from Gaza: Alienation or Accommodation?"
Journal of Palestinian Studies 24/4 (Summer 1995): 73-82.
26 United Nations, Emergency Employment Programme: An Overview
of Ongoing Activities (Phase I). 2nd Draft, Gaza Strip, 1 May,
1996, p. 4.
27 Sources within PA security wings have indicated that Mohammed
Rashid and Khaled Salem are the same person.
28 Interviews with officials of the US Department of State and
United States Agency for International Development Tel Aviv and
Washington, December, January and May 1996.
29 United Nations Development Programme, Internal Document, Gaza
City, May 1996.
30 Ibid.
31 Interviews with US government officials, Tel Aviv and Washington,
D.C., December, January, and May 1996.
Unofficially, the IMF puts these profits at $100-$200 million and
the CIA at $400 million.
32 Rex Brynen, "International Aid to the West Bank and Gaza: A
Primer," Journal of Palestine Studies 25/2 (Winter 1996):
53, n. 5.
33 Interview with Salah Abdel Shafi, Economist, USAID, Gaza, May
1996.
34 Interviews with local businessmen, Gaza City, May 1996.
35 Interview with Dr. Mustafa Barghouti, Union of Medical Relief
Committees, Ramallah, West Bank, May 1996.
36 Interview with Dr. Haidar Abdel Shafi, Gaza City, May 1996.
37 Sara Roy, "Separation or Integration: Closure and the Economic
Future of the Gaza Strip Revisited," Middle East Journal
48/1 (Winter 1994): 14-18. 
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