[WCUSP] Economy of Gaza by Sara Roy (& amount of aid to Gaza)

[Odile Hugonot Haber]

October 4, 2006

"79 Percent of Gazan Households are Living in Poverty"

The Economy of Gaza

By SARA ROY

In one of many reports and accounts of economic life in the Gaza Strip
that I have recently read, I was struck by a description of an old
manstanding on the beach in Gaza throwing his oranges into the sea.
The description leapt out at me because it was this very same scene I
myself witnessed some 21 years ago during my very first visit to the
territory. It was the summer of 1985 and I was taken on a tour of Gaza
by a friend named Alya. As we drove along Gaza's coastal road I saw an
elderly Palestinian man standing at the shoreline with some boxes of
oranges next to him. I was puzzled by this and asked Alya to stop the
car. One by one, the elderly Palestinian took an orange and threw it
into the water. His was not an action of playfulness but of pain and
regret. His movements were slow and labored as if the weight of each
orange was more than he could bear. I asked my friend why he was doing
this and she explained that he was prevented from exporting his
oranges to Israel and rather than watch them rot in his orchards, the
old man chose to cast them into the sea. I have never forgotten this
scene and the impact it had on me.

Politics and Economics

Over two decades later, after peace agreements, economic protocols,
road maps and disengagements, Gazans are still casting their oranges
into the sea. Yet Gaza is no longer where I found it so long ago but
someplace far worse and more dangerous. One year after Israel's 2005
"disengagement" from the Strip, which was hailed by President Bush as
a great opportunity for "the Palestinian people to build a modern
economy that will lift millions out of poverty [and] create the
institutions and habits of liberty,"i a "Dubai on the Mediterranean"ii
according to Thomas Friedman, Gaza is undergoing acute and
debilitating economic declines marked by unprecedented levels of
poverty, unemployment, loss of trade, and social deterioration
especially with regard to the delivery of health and educational
services.

The optimism that surrounded the disengagement was also reflected in
the Palestinian Authority's plan for reviving Gaza's economy known as
the Gaza Strip Economic Development Strategy, published soon after the
disengagement was completed.iii This document, less a development plan
than an articulation of objectives, had, among its primary goals
"[a]chieving stability, contiguity and control over land to support
the Palestinian economy," and "[a]dopting effective economic policies
to enable the rehabilitation of the Palestinian economy to achieve
comprehensive development."iv

Needless to say the Authority has not been able to realize its
objectives given the exigencies imposed. However, it is important to
point out that even in the absence of many constraints, rational
planning of the sort described in the Authority's plan is simply futile
in an environment that is itself so irrational, typified by
increasingly acute unpredictability, vulnerability and dependency,
themselves resulting from a continued and unchanged occupation. This
is not a new problem but an old one that requires a new approach that
argues that as long as the political environment remains unchanged (or
worsened), economic development is precluded and economic planning
should focus on areas less vulnerable to external pressure (e.g. labor
force training, institutional development). Otherwise, planning
becomes nothing more than a theoretical and increasingly abstract
exercise that
promises few if any meaningful results. In this context, international
aid can play a critical role in helping people survive but with little
if any structural impact on the economy.

The pauperization of Gaza's economy is not accidental but deliberate,
the result of continuous restrictive Israeli policies (primarily
closure), particularly since the start of the current uprising six
years ago, and more recently of the international aid embargo imposed
on Palestinians after the election and installation of the
democratically elected Hamas-led government earlier this year.
However, one need only look at the economy of Gaza, for example, on
the eve of the uprising to realize that the devastation is not recent.
By the time the second intifada broke out, Israel's closure policy had
been in force for seven years, leading to by then unprecedented levels
of unemployment and poverty (which would soon be surpassed). Yet the
closure policy proved so destructive only because the 30 year process
of integrating Gaza's economy into Israel's had made the local economy
deeply dependent. As a result, when the border was closed in 1993,
self-sustainment was no longer possible-the means were simply not
there. Decades of expropriation and deinstitutionalization had long
ago robbed Palestine of its potential for development, ensuring that
no viable economic (and hence political) structure could emerge.v

International Agencies: Realties and Forecasts

According to the World Bank, Palestinians are currently experiencing
the worst economic depression in modern history. The opprobrious
imposition of international sanctions has had a devastating impact on
an already severely comprised economy given its extreme dependence on
external sources of finance. For example, the Palestinian Authority is
highly dependent on two sources of income. The first is annual aid
package from Western donors of about $1 billion per year (in 2005,
according to the World Bank, donors gave $1.3 billion in humanitarian
and emergency [$500m/38%], developmental [$450m/35%] and budgetary
[$350m/27%]) assistance, much of it now suspended. The second is a
monthly transfer by Israel of $55 million in customs and tax revenues
that it collects for the PA, a source of revenue that is absolutely
critical to the Palestinian budget and totally suspended.vi In fact,
Israel is now withholding close to half a billion dollars in
Palestinian revenue that is desperately needed in Gaza.

The combined impact of restrictions, notably the almost unabated
closure and the ongoing economic boycott, has resulted in
unprecedented levels of unemployment that currently approach 40
percent in Gaza (compared to less than 12 percent in 1999). In fact,
Palestinian workers from Gaza have not been allowed into Israel since
12 March 2006, Gaza's primary market and all entry and exit points
have been virtually sealed since June 25, 2006 when Israel's current
military campaign in Gaza began.vii In the next five years,
furthermore, 135,000 new jobs will be needed just to keep unemployment
at 10 percent.viii

Trade levels have been similarly affected. By early May 2006, for
example, the Karni crossing, through which commercial supplies enter
Gaza, had been closed for 47 percent of the year with estimated daily
losses of $500,000-$600,000.ix Compounding this are agricultural
losses amounting to an estimated $1.2 billion for both Gaza and the
West Bank over the last six years.

By April 2006 79 percent of Gazan households were living in povertyx
(compared to less than 30 percent in 2000), a figure that has likely
increased; many are hungry. Furthermore, in Gaza, adding one dependent
member to the family increases the household's probability of being
poor by 3.5 percent. The dependency burden found in Gaza is second
only to that of Africa.xi Hence, the number of adults in a household
who are employed is a strong factor in poverty alleviation. Not
surprisingly, individuals living in the Gaza Strip are 23 percent more
likely to be poor than individuals living in the West Bank.

The United Nations currently feeds approximately 830,000 of Gaza's 1.4
million population (or 59 percent of the total population who would go
hungry without UN assistance)-100,000 of whom were added since March
of this year. UNRWA primarily supports 610,000 (all of whom are
refugees) and the World Food Program supports 220,000 (60,000 were
added in September 2006 alone) non-refugees. The latter include
136,000 "chronic poor" who previously received welfare assistance from
the PA.xii

Exacerbating Gaza's socioeconomic decline was Israel's attack on
Gaza's only power station last June. The plant, which was destroyed,
supplied 45 percent of the electricity in the Gaza Strip. The cuts in
power have been extremely harmful to healthcare delivery, food and
water supplies, and the treatment of sewage among other problems.
Recently, the Israeli human rights group, B'tselem said the attack on
the power plant constituted a war crime under international law since
it targeted a civilian population.

Furthermore, since Israel's military invasion of the Gaza Strip known
as "Operation Summer Rains," 237 Palestinians have been killed by the
IDF (out of 382 since January 2006 and 2137 since September 2000, the
majority civilians) and 821 wounded. The Israeli military has also
fired at least 260 air-to-surface missiles and hundreds of artillery
shells at mostly civilian targets including government buildings and
educational institutions, dozens of private homes, six bridges and a
number of roads, and hundreds of acres of agricultural land,
destroying them.xiii [Note: Between 29 March and 27 June 2006, Israel
launched 112 air strikes, fired 4,251 artillery shells and five naval
shells killing 94 Gazans including 35 civilians.]xiv

According to the United Nations, in 2007, absent of any meaningful
improvement, the Palestinian economy as a whole will be 35 percent
smaller than it was in 2005, falling to its level in 1991, and over
half the labor force will be unemployed.xv The UN recently published
projections on the impact of reduced international aid on the
Palestinian economy. Using 2005 as its basis of comparison, the
projections assume a 30-50 percent reduction in aid (and with it
public expenditures), a 50-100 percent increase in restrictions on
trade, and a 10-20 percent increase in restrictions on labor flows to
Israel. Under the worst-case scenario, which is not unlikely, the
losses in GDP between 2006 and 2008 could reach $5.4 billion, which
exceeds the Palestinian GDP in 2005. Eighty-four percent of total jobs
available in 2005 could be lost.xvi Even under a better case scenario,
writes Raja Khalidi, an economist at UNCTAD, "the Palestinian economy
will implode to levels not witnessed for a generation."xvii

The Population Factor

Gaza's problem is not only one of occupation but of population and
this vital to understand. Today, there are more than 1.4 million
Palestinians living in the Gaza Strip: by 2010 the figure will be close
to two million. Gaza has the highest birthrate in the region ˇ 5.5 to
6.0 children per woman ˇ and the population grows by 3 to 5 percent
annually. Eighty percent of the population is under 50 and 50 percent
is 15 years old or younger. The half of the territory in which the
population is concentrated has one of the highest densities in the
world. In the Jabalya refugee camp alone, there are 74,000 people per
square kilometer, compared with 25,000 in Manhattan.

According to the latest data produced by Harvard University's 2010
Project, with an annual growth rate of between 3.45 and 3.5 percent,
Gaza's population of 1,330,000 people will reach 1,590,000 by 2010 and
2,660,000 by 2028, doubling its current size. By 2010, furthermore,
the
adult population, relative to that of youth, will grow by 24 percent,
placing added pressures on the job and housing markets.xviii If
growing numbers of people are unable to secure work or housing, both
of which are key to marriage and family structure, the resulting and
widening gap between supply and demand will lead to greater violence
and with it the continued militarization of society. Hence, population
trends will be a major factor determining the socioeconomic wellbeing,
or lack thereof, of the Gaza Strip.
And even with an immediate decline in fertility, Gaza's young
population will grow for at least a generation
(because of the size of the upcoming cohorts).xix

The combination of a growing population and shifting age structure
places enormous pressures on public services, especially education and
health. In education, for example, population growth alone-without any
improvement in the quality of services-will require 1,517 more
teachers and 984 new classrooms over the next four years. Similarly,
if Gaza's educational system is to reach current standards in the West
Bank, it needs at least 7,500 additional teachers and 4,700 new
classrooms. And if the Gaza Strip is to just maintain current levels
of access to health services in 2010, it will need 425 more
physicians, 520 additional nurses and 465 new hospital beds.xx

An Economic Forecast

The resulting damage-both present and future-cannot be undone simply
by 'returning' Gaza's lands, removing 9,000 Israeli settlers, and
allowing Palestinians freedom of movement and the right to build
factories within an enlarged but isolated and encircled Gaza. Gaza's
many problems cannot be addressed when its burgeoning population is
confined within a physically constrained territory of limited
resources. Density is not just a problem of people but of access to
resources, especially labor markets. Without external access to jobs
and the right to emigrate, something the Gaza Disengagement Plan and
Olmert's realignment plan effectively deny, the Strip will remain a
prison unable to engage in any form of economic development.

Indeed, in 2005, the international community (through the Ad Hoc
Liason Committee) concluded that the most important factor in
Palestine's economic decline is not reduced aid levels but movement
and access restrictions and the suspension of revenue transfers. In
fact, they concluded that in the continued absence of a political
settlement (that would allow greater movement into Israel and beyond),
international aid can only help Palestinians survive and nothing else.

The urgency of Gaza's plight is considerable for as Raja Khalidi
writes, "Even assuming a full return of donor support and the
relaxation of mobility restrictions by 2008, GDP and employment losses
would continue to accumulate. This suggests that today's declines will
have harmful, long-lasting effects on the economy that will persist
even if adverse conditions are alleviated later on."xxi

Dr. Sara Roy is a Professor at the Center for Middle Eastern Studies
at Harvard University. Dr. Roy has worked in the Gaza Strip and West
Bank since 1985 conducting research primarily on the economic, social,
and political development of the Gaza Strip and on U.S. foreign aid to
the region. Dr. Roy has written extensively on the Palestinian
economy, particularly in Gaza, and has documented its development over
the last three decades.

Notes

i The White House, Office of the Press Secretary, "President Bush
Commends Israeli Prime Minister Sharon's Plan," 14 April 2004.

ii See my analysis of the disengagement agreement, in Sara Roy, "A
Dubai on the Mediterranean," The London Review of Books, November 2005.

iii Ministry of National Economy and Ministry of Planning, Gaza Strip
Economic Development Strategy, The Palestinian National Authority,
September 2005.

iv Ibid. v Roy, "A Dubai on the Mediterranean."

vi Samar Assad, "Forecast for Palestinian Economic Survival," Palestine
Center Information Brief No. 135, 18 April 2006.

vii United Nations, The Humanitarian Monitor-occupied Palestinian
territory, Number 4, August 2006, p. 1.

viii Program on Humanitarian Policy and Conflict Research, Harvard
University, Gaza 2010: human security needs in the Gaza Strip,
Population Projections for Socioeconomic Development in the Gaza Strip,
Working Paper #1, May 2006, Cambridge, MA, p. 18.

ix OCHA, Situation Report: The Gaza Strip, 3 May 2006

x United Nations, The Humanitarian Monitor, p. 7.

xi Harvard University, Population Projections for Socioeconomic
Development in the Gaza Strip, p. 15.

xii Steven Erlanger, "As Parents Go Unpaid, Gaza Children Go Hungry,"
The New York Times, 14 September 2006, p. A11.

xiii Palestinian Centre for Human Rights (PCHR), Weekly Report: A
Special Issue on the 6th Anniversary of the al-Aqsa Intifada, No.
38/2006, 21-27 September 2006, p. 2.

xiv Palestinian National Initiative, The Forgotten People: The Despair
of Gaza One Year After the 'Disengagement', 14 September 2006.
http://www.amin.org.

xv Raja Khalidi, "Palestinian collapse hurts all," Ha'aretz, 17
September 2006.

xvi Ibid.

xvii Ibid.

xviii Harvard University, Population Projections for Socioeconomic
Development in the Gaza Strip, pp. 13-16, 20.

xix Ibid, p. 13.

xx Ibid, p. 21.

xxi Raja Khalidi, "Palestinian collapse hurts all."

This information brief was written for The PalestineCenter. The above
text may be used without permission but with proper attribution to The
Palestine Center. This information brief does not necessarily reflect
the views of The Jerusalem Fund.