The Two-Sided Coin: An Analysis of the Economic Conditions in Gaza & Israel

Written By: Mohamed El-Housiny
Edited By: Fatima Mohammadi

Introduction

Less than one year ago, fourteen hundred people were killed in Gaza, martyred in the twenty-two day air and ground incursion that began on December 27th of 2008 and that did not end until January 22nd of 2009. The Palestinian economy was another victim; Flattened, destroyed and rendered useless by the three-year siege imposed by the Israeli government with the help of the United States and Egyptian governments. The twenty-two day onslaught only added to the already overwhelming misery faced by the Palestinians. The siege left the Gaza Strip desperate for supplies, while the massacre left the area upside down in the most literal way. Food, supplies, and other imports and exports were all denied because of the continued siege, and the infrastructure so damaged that the commodities that existed inside the Strip were rendered useless. In the many months since the massacre ended, the merciful Israelis have allowed only a number of aid convoys to enter the strip, most likely due to outside pressure by UN entities and other government outlets.

One question that comes immediately to mind is: who benefits from this devastating siege? What are the effects on the economies and governments involved? Are there benefactors or does everyone lose? There has to be a motive for the continued occupation, as well as for the siege that does not allow imports or exports to the Gaza Strip. This paper will analyze the siege from an economic and business perspective two-fold: 1) from the Palestinian perspective – which will seek to understand how the siege has devastated the economy and the different means people are employing to survive and rehabilitate their way of life. 2) from the Israeli perspective – which will analyze their strategy for denying imports and exports to the Gaza Strip, the effect on the Israeli economy and, especially, how it benefits from the continued border closings.

Background of the Conflict

The Palestinian-Israeli conflict has been ongoing for over sixty years with no end in sight. Yet there has never been a time when the economic situation in Occupied Palestine has been as devastating as it is currently. For the past three years, the Israeli military has had their hands around the neck of nearly two million Gazans, literally strangling them to starvation, with an unabashed denial of food, water or aid to this two-mile strip of land considered to be the most densely populated place on Earth. Even Vatican officials have compared the Gaza Strip to an Israeli concentration camp. (6)

Although the Israeli government evacuated illegal settlers from the Gaza Strip as part of a negotiated “deal” in 2005, the occupation of the air, land, water and borders of the Gaza Strip and, therefore the economic dependence of the area upon Israel, has been ongoing. Rather than an increasing economic independence after the Israeli pullout, the Gazans have become even more dependent Israel, as one of the less publicized requirements of the Israeli exit from the Gaza strip was that all supplies run through Israeli controlled borders.

In a democratic election held in the Gaza Strip in 2006, where one of the two major political parties of the Palestinian Authority - Hamas, won a majority of the parliamentary seats thereby becoming the governing body of the area, the siege became even more severe. The already tight borders became effectively sealed to most. Imports and exports once requiring permits became forbidden. Foreign assistance into Gaza was rejected at the borders by the Egyptian and Israeli authorities. In short, the strangle-hold of the Israeli government looked to not only keep control of the area, but to effectively create a situation of utter dependence upon the borders and upon the Israeli government for the most basic of needs. In desperate response to this continued occupation and economic blockade, political factions within Gaza shot rockets towards Israel – nearly all of which ended up in the buffer zone created from Palestinian land between the wall that surrounds Gaza and Israeli villages.

A six-month truce was negotiated in June of 2008, in which Israeli was to lift the blockade and rockets fired by Hamas would cease. Hamas kept their side of the agreement, and the rocket fire decreased rapidly to zero whereas the siege continued to worsen. Israel committed a breach of the truce in early November with an attack on Gaza that killed 6-7 Hamas associated individuals and Hamas responded with more home-made rockets. It was this exchange that deteriorated quickly into the massacre on Gaza’s population. The Israeli government claimed their motive was to end rocket fire from Northern Gaza into Southern Israel. However, even since the attack and murder of over 1,400 civilians, the siege has ceased to end.

The cry for peace, let alone humility, during the massacre was nearly nonexistent from both sides. The devastation and losses sustained by the Palestinian side left them asking the free world “where is the justice?” Their economic downfall as a result of the long-standing siege has also not brought them any closer to resolution. So what was the point of the attack? Were the Israeli forces hoping to kick out the democratically-elected Hamas government? If so, they failed at that attempt since after the fighting ceased, Hamas has more support in the Gaza strip than ever before. Was Israel looking to garner more support or sympathy in the world community with their show of force, as if to show the hostilities they are compelled to employ as a result of their precarious political place in the Middle East? If so, they failed in that attempt with the vigorous public condemnation in almost every country of thousands of individuals, let alone many governments, the United Nations and hundreds of human rights organizations. So, does it make sense to continue a siege upon over two million people and the massacre of nearly two thousand when the ends don’t justify the means and the negative results outweigh the positive outcome? Even from the most optimistic Israeli perspective, the results are far from encouraging. From the Palestinian perspective, the efficacy of the siege, let alone the massacre, is meaningless – but the effects of each are critical to assess.

The Palestinian Perspective

Historically, the economic background of the Gaza Strip was comprised of smaller industries with a focus around manufacturing, textiles, traditional souvenirs (carvings, soap-making, etc) and agriculture. Their main agricultural assets were olives, vegetables, dairy products and citrus. They tended to export citrus and cut flowers, and would often import the products they could not produce easily like food, consumer goods and construction supplies. (4) The worsening siege has had increasingly drastic effects on the overall economy due mainly to the already limited amount of import and export between Gaza and its trade partners. Their neighboring nations of Israel, Egypt, and the Occupied West Bank are their main business partners; while the two former mentioned are economically strong, they are politically problematic, and the latter is in its own economic melee. They import the goods they need to survive and export the things they need to keep their economy afloat and therefore the siege has been so devastating.

It is hard to understand the full extent of the carnage and difficulty brought onto the economy over the past few years without looking into the historical analysis of the conflict. For example, during the first Intifada, the Israeli military destroyed seaports and airports and, even now because of a shortage of rebuilding supplies, these are still left in ruins. (1) Israeli forces departed from control of the Gaza strip in September of 2005, as a result of a signed disengagement plan. (1) This was meant to improve Palestinian independence in the hopes for them to create their own state. The agreement further entailed that all goods and supplies coming from Egypt would have to go through the Israeli crossing with their complete approval or denial of any goods. This condition was put in place years after this rigid supervision proved to be detrimental to the Gazan economy and cost them upward of some half a million dollars daily.

The full blockade was put into effect in July of 2007 and it hit the Strip hard. A more than 10% decrease in production across several commodities stalled everything within Gaza. (7) All imports were banned from entering. The overwhelming majority of Gazans are living below the UN established poverty rate and more than 90% of Gaza’s citizens are dependent upon outside aid to survive with their most basic needs. (12) Recent polls have found the official unemployment rate to sit at over 49%. (12) In fact, the prospect of steady employment is rapidly disappearing for the majority of the population, an especially difficult reality for the population under 20 years of age which makes up about 70% of the overall population.(12)

The closing of the borders has caused havoc on the private sector. The majority of independently-owned Palestinian businesses, a traditional and predominant livelihood for many throughout the region, have had to close due to a shortage of supplies necessary to keep their doors open. Bakeries have shut down from a lack of cooking oil, cement factories from no materials to mix their cement, banks are closed due to a shortage of bank notes, and power stations shut down from the lack of diesel. Only a few trucks have exported any products or materials since the blockade began. A lack of supplies has forced even large factories to close. Before the siege around 4000 factories and 35,000 people were in service; now, only 90 factories and 860 people are serving the countries industrial needs. (12) Infrastructural devastation affects the daily life of every person in Gaza, and especially the business and services sectors. For instance, most of Gaza is without electricity for between 4-12 hours every day. (12) This affects hospitals, small businesses, schools [photo: Author in front of American International School after Israeli military bombing in January 2009], farms, and police stations, to mention a few industries, alongside of affecting every person who seeks simply to study or prepare food for their family. In sum, the incursion caused over 4 billion dollars worth of damage to the Palestinian infrastructure, which amounts to more than three times the annual Gazan economy. (12) The siege of the Gaza Strip, and the proceeding massacre, has inarguably caused irreversible damage to the economy and the lives of the people who continue to struggle to exist.

One industry of particular focus is that of the fishing industry. Since the Gaza Strip is bordered along its entire Eastern border by the Mediterranean Sea, the fishing industry has been one of subsistence and community for literally hundreds generations. In the past, Gazan fishermen had fished up to fifteen miles off the shore into the Mediterranean. which allowed them to catch larger fish and given them extended freedoms before the blockade. (1) Now, however, they are limited to accessing only three miles from the shore. Much of the fish, shoals and sardines near the coast are fewer in numbers and fishermen must travel farther out or return empty-handed. The dumping of sewage from the shore into the sea has caused detriment to nearby sea life, not to mention affecting the long-term fishing population near and far from the shore. Taken from the UN office of Coordination of Humanitarian Affairs In the years preceding the blockade fishermen would bring in around 4000 tons yearly, and during 2008 this number shrunk to about 2700 tons. (1) The economy was very dependent on the fishing industry totaling more than 10 million in some estimates. Now after the siege it has nearly been cut into two. The industry itself also supplied the economy with a base for employment with more than 45000 people employed and this number as has the total catch been depleted major. (1)

The society and economy are not the only victims. The environment in Gaza has become a topic of high concern for environmental watch groups. Three main outcomes of the blockade as they impact the environment are: using cooking oil as fuel, the dumping of raw sewage into the Mediterranean sea, and the trash, waste and debris that is accumulating in the streets. (8) The lack of fuel for vehicles, machinery and boats has caused sufficient harm to both the taxi and fishing industries. Over 15,000 drivers are at risk of losing their livelihoods due to lack of fuel and increased prices in the little fuel that is available. (8) Even ambulances and medical vehicles are prevented from running normally due to the blockade that does not distinguish between materials allowed through the border for use by the civil service industry. The consistent need for Gazans to drive on cooking oil is causing identifiable harm to the environment that will likely take years to repair unless it can be controlled now. (8)

In January of 2009, the Israeli air force bombed the single water processing plant located in Gaza. Lack of clean water and of water purifying plants has quickly become a topic of concern for environmental and human rights groups alike. Just weeks ago, Human Rights Watch published a report identifying the water crisis in the Gaza Strip and stating that the population there is living well-below the UN recommendations of clean water per person [Q-40 well, northern Gaza, destroyed in Israeli air strikes. photo: CMWU] . Not only does the lack of water affect the daily lives of every person, but it is a single significant concern of health professionals who know the spread of disease is exponentially increased in the already fragile area. The waste and debris in the streets is similarly of concern to health professionals, as well as those concerned with rebuilding the infrastructure. Though rebuilding Gaza will likely take more than a decade without the siege in place and with access to materials and machinery necessary to take on such a monumental task, right now there is literally no way to even remove the rubble from destroyed houses and buildings. More disturbing is the fact that many victims of the massacre are unaccounted for and believed to still be buried in these immovable ruins.

I visited the Gaza strip less than a month ago as part of a humanitarian medical aid convoy. After jumping through multiple hurdles posed by the Egyptian government, we were allowed to enter for 24 hours under strict preconditions. We saw the destroyed schools, houses, buildings – not a single structure was left untouched. We could also visibly see the effect it had on the economy. Israel’s intent was obvious - to not allow the Palestinians to rebuild themselves. Despite this, and despite the overwhelming task at hand, the people are finding new, creative ways to rebuild. With the lack of building materials entering through the borders, Gazans are now using the very Earth as a building material. (10) By resorting to the materials around them, they try to rebuild some semblance of structure and normalcy in a world literally racked with chaos. You see this same determination, both symbolic and necessary in the use of tunnels to import and export materials despite the siege. Israeli goods face no trade barriers when exported to the Palestinian territories, but Palestinian goods are highly restricted. Estimates of over $180 million from the World Bank show how much revenue is lost yearly from this problem. (13)

Tunnel building has even become a common trade. As tunnels are destroyed by the Israelis and Egyptians, citing that they are used for illegal purposes, even more are built every day. The siege has rendered the Palestinian currency useless and, in fact, has opened a door for corruption. For instance, Egyptian business men on the Rafah borders charge 3 times the cost for household items and are making a living off Palestinian border crossings. The same border crossers are making money and continuing their businesses by selling their smuggled goods to the countrymen. (2) Also, by closing the borders and denying them the right to export, thereby minimizing the trade with Palestinian currency has been rendered quite useless, limiting not only their current efforts at sustainability but hindering any long-term vision of sustainability in the global market.

Israel

It is a well-known fact that the United States is an ally in every way to Israel. From 1992 to the present, the US has given more than 2 billion in grants to the Israeli government. Similarly, between 1974 and 1989, Israel received more than 16 billion in military grants. (14) Currently, the annual aid reaches nearly one-third of the total of US foreign aid to other countries, more than all the African countries combined. The British are also huge supporters of the Israelis and their government. In 2007, exports from the UK to Israel came to over 1 billion Euros. The UK now stands as a strong supporter of Israel and their 3rd largest supplier, with exports totaling more than 5% of Israelis total imports. (11)

Interestingly enough, despite the ongoing conflict, the Palestinians are an essential part of the Israeli economy. Before the current siege, the Palestinians were the 2nd largest exporter behind the US of Israeli goods. According to the Central Bureau of Statistics, the grasping the “real story” can be done via comparison to other countries. In 2006, Israel exports around a billion dollars of goods to both France and Italy, which is roughly the same amount to the small impoverished Palestinian state. (9) For instance, the people of Gaza buy around 80 tons of fruit from the Israelis annually, which accounts for around 10% of the total produce in Gaza. Some producers send more or less depending on their location and products. It is clear that the enormous amount of trade that occurs between the two nations contributes to the sustainability of each of their economies. What effect, then, does the ongoing conflict have on these two nations that are situated so aggressively?

The Palestinians have made up a major portion of the labor force in Israel since the beginning of the occupation in 1967. Particular sectors – especially agricultural & service – where Palestinians were especially prevalent, afforded no easy opportunities for the Palestinians. Those who work in Israel, or who worked there prior to the massacre, are forced to purchase daily work permits. Closed borders and supply and demand problems have forced more Gazans into unemployment, which in turn has forced more families into poverty. The aid from abroad intended for the Gazans runs through the Israeli borders. The only access to gas for fuel and energy, communications and electricity for the Palestinians are supplied or at least controlled by the Israelis. The tariffs alone on these types of exports which are paid by Palestinians help the Israeli economy while providing little to no consistent benefit to the Palestinians. (13)

Israel has essentially forced Palestinians to use Israeli resources, but are now, because of the economic crisis in Palestine, losing their economic dominance. In short, the continued hostilities are causing great harm to the Israeli economy. The Palestinians are a major part of their economy and market. With the ongoing conflict and the resulting devastation of the Palestinian economy, the loss of sale for Israel accounts for around two billion dollars and several tens of thousands of jobs, around 75,000 in total. (9) This will continue if the border closings of the siege continue. This mindset can only be attributed to Israel’s ignorance, lack of planning or outright apathy towards the economic perspective as long as the overall governmental goals in regards to the Palestinian population are achieved.

With the destruction of their infrastructure, this has made Palestinians even more dependent on aid from outside agencies. UN Relief and Works Agency (UNRWA) for Palestine is the sole consistent provider for aid to Gaza. Without that aid, well over half the population suffers drastically in their access to their most basic daily needs. When aid shipments are delayed or rejected at the borders, the payment for storage facility and transport, which can reach to the several thousands, benefits the Israelis and obviously harms the Palestinians. Aid agencies tend to buy most of their goods from within Israel to avoid incurring drastic shipping costs and, possibly, to encourage the easing of Israeli border restrictions in regards to that particular shipment. These purchases are a definite benefit to the Israeli economy. Some statistics even show that 45% of the money spent on these aid goods returns to and is regenerated through the Israeli economy which, in turn, benefits the Occupation of Palestine. (15) All this aid has to come through the Israeli borders one way or another. All fees from security, storage, and transportation are then paid to the Israeli government. With the many limitations and delays that are imposed by the Israelis, this has only inflated the costs imposed by their companies.

One of the major points to address is that much of this aid is paid with currency from abroad. Since they are purchasing Israeli goods, this currency must be converted to Israeli shekels. Therefore, the Israeli Central bank has large sums of American and European currency which it keeps – likely inflating their own currency and as security for future investments. (5) In short, every part of the process of the Occupation benefits Israel in some way and encourages the siege -- from the taxes incurred and tariffs generated through Palestinian purchases, to the purchase, storage and transport of aid supplies.

Conclusion

Israel’s pulling illegal settlers out of Gaza in 2005 has actually made the Palestinians more dependent on Israel for every sector of their economy and society than it has made them more independent. This was a strategic move on the part of the Israeli government. The Gaza Strip is completely surrounded by the Israel and by a 25 foot high fence, with the exception of the Rafah border along Egypt, where the Egyptians have effectively closed their borders under pressure to maintain the siege by the US and Israeli governments. By including in the 2005 disengagement plan that all goods have to run through their borders, the Israelis have the absolute control over in what goes in and out of Gaza. In other words, the Occupation of Gaza by Israel continues to this day. As one of the BDS movement leaders, Omar Barghouti, put it, "When companies start to lose money, then they listen." Perhaps governments will too.

Works Cited

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