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By: Prof. Dr. Moein Muhammad Ragab⃰  (Exclusively for al-Zaytouna Centre).


The Palestinian economy in the Gaza Strip (GS) is undergoing exceptional circumstances in light of the paralysis that has hit various sectors as a result of the most recent Israeli war (7/7–26/8/2014). Indeed, this war was the longest compared to the conflicts of 2008/2009 and 2012.

The war was also the most brutal in terms of the scope and extent of devastation, which affected the entirety of GS, from the north to the south and from the east to the west. The devastation left behind by the war is of such magnitude that local productive capacities, and economic and human resources, are unable to deal with, let alone embark on a process of reconstruction.

Based on a report of the United Nations Conference on Trade and Development (UNCTAD), it says, “even before the latest military operations, Gaza’s local economy was in a state of total collapse,” and “the consequences

[of latest war] will be grave for the Palestinian people and their economy.”[1]

This paper addresses a number of themes as follows:

First: The Most Prominent Advantages of the Opportunities for Development and Investment, Economic Growth, and Production

GS was and still is largely dependent on the outside world to obtain the goods and services it needs. These imports were exceeding $2 billion annually in value, which is close to the value of the Gross Domestic Value (GDP) of GS.

For this reason, opportunities for investment and economic growth are possible as one of the important scenarios, through expanding national production in a number of sectors and activities that meet the needs of the local market at least, as part of a policy of a strategy for “import substitution.” The basis for this is that the local market has a high demand for many consumer and productive goods and services. Taking into account the availability of much of the elements of production locally through institutions and production units to the private sector.
Such a policy would create many advantages, most notably:

Taking advantage of the local productive capacity, which has been disabled as a result of Israeli restrictions or attacks. Furthermore this policy would absorb a proportion of the appropriately qualified workforce looking for work. It would allow the expansion of available productive capacity required by the new investments. Consequently, there is a possibility to attract new investments. This means the possibility of increasing production and the growth of the local economy, which would have a positive impact on the per capita GDP level.

If it becomes possible to deal freely through the crossings with the outside world, this would allow the expansion of production and economic growth, as well as imports.

Second: Challenges, Problems, and Obstacles to GS Economic Growth and Development

The challenges and constraints to economic growth and development are many, most notably:

1. GS’s lack of natural economic resources that can form the basis to obtain raw materials and supplies for production, thus necessitating their import mostly from abroad, at a time when Israel imposes significant restrictions on the types of imported goods, particularly capital goods such as machinery and equipment needed by the productive sectors. Consequently, procuring these needs remains subject to the approval of the Israeli authorities that allow the flow of goods to GS only via Karm Abu Salem Crossing, in the far south of GS.

2. The second challenge is related to the other de facto routes for the flow of goods into GS, namely, the border tunnels between the Egyptian city of Rafah and Rafah in Palestine. These tunnels are defunct having been closed down since July-September 2013 with the destruction of a large number of them, to the tune of 1,700 tunnels so far. These allowed the entry of various types of goods, and employed thousands, both directly and indirectly. In parallel, the Egyptian side imposes strict restrictions on the movement of persons through the Rafah crossing, which links GS to the Republic of Egypt.

3. The third challenge has to do with the lack of the investment climate needed for investors to operate, whether by local or foreign investors. For Israel had waged several destructive wars in a short span of time, targeting productive facilities and units that had once helped achieve a high level of quality and ability to compete with foreign alternatives.

4. Among the other challenges to growth and development are those related to Israeli restrictions and obstacles on reconstruction goods that can be admitted into GS.  So far, no real steps have been made to facilitate such entry.

5. In addition to the above, there is the seriousness of the international community in supporting reconstruction programs in GS. This is another challenge, given that the majority of countries have their particular concerns and their own internal problems. It will limit their attention for GS, whether in terms of backing the lift of the economic siege or the funds for reconstruction projects. The international community will also take into account the fact that an agreement has yet to be reached over the date of the GS reconstruction conference.

Third: The Priorities of Investment, Economic Development, and the Productive Sectors as Engines and Cranes for Development

The GS economy is a promising one, which allows a quantum leap in many areas, most notably:

1. The construction sector, which covers housing needs in the first place, especially since GS has a large deficit in this area, estimated at 70 thousand housing units, with (10–15) thousand additional units being annually needed to meet the requirements of couples wishing to marry, as well as the requirements of annual high population growth. This is in addition to the need to replace old housing units.

2. The above is linked with the need to rebuild tens of thousands of housing units targeted in the most recent war (7/7–26/8/2014), bearing in mind that the data on houses and various buildings destroyed are field estimates and require an accurate survey. These activities meet the needs of local market.

3. Among other promising sectors is the information technology sector, which can overcome the obstacles of the blockade. This is one of the activities for which the well-qualified human resources are available and for which there is a broad external market as well as a domestic one. Indeed, two Palestinian companies were chosen as being among the best new startups globally, an important and unprecedented achievement at the level of the internet sector globally. Palestine will thus be represented at the Dublin Web Summit alongside major global corporations, allowing networking and the exchange of information in the service of the IT sector in Palestine and placing the country on a leading position in this area. [2]

Fourth: The Criteria That Must be Applied in Addressing the Devastation Resulting From the Israeli Aggression Ahead of Reconstruction

There is a need to develop necessary rules, regulations, and standards for dealing with the destruction of Israeli aggression, most notably:

1. Using a data bank that would contain accurate and detailed information on the damage sustained by various aspects of life in GS: number of killed and wounded, patients with chronic conditions and psychological disorders classed by diagnosis and age; buildings that were partially or totally destroyed, including residential and educational buildings, healthcare facilities, public and private facilities; in addition to movable and immovable properties such as cars, agricultural land, factories, shops, and others. This data must contain the extent and type of damages, including an estimation of the huge volume of rubble, estimated at 2.2 million tons, identifying the type of heavy engineering equipment needed for clearing, transporting, and disposing of debris, in addition to the steps needed for restoration and reconstruction works, with a realistic financial estimate without any over or underestimation.

2. Putting certain factors under consideration when planning for the needs and requirements of the near GS future. The lack of available space in GS—not exceeding 360  km2—in addition to the high rate of population growth and high population density. This is not to mention chronic infrastructure problems including sharp power shortages, the accumulation of large quantities of untreated sewage, pollution, and the salinity of drinking water in a way that makes it unfit for human use. In addition, there is the beach pollution, which is the main outlet for Gazans, and which could also contaminate fisheries.

3. International standards in force in various countries at the level of international healthcare, educational, environmental, and human rights organizations should be the benchmark for the minimum criteria to be bound by in GS. They should also be the benchmark for adequate human life, food, health, and the environment, which takes into consideration the lack of space for various use, rapid population growth, and limited natural resources in GS.

Fifth: How to Classify the Areas of Reconstruction to Best Alleviate the Suffering and Direct Funds Towards Efficient Channels

With the skyrocketing cost of restoration and reconstruction works, and the difficulty of securing necessary funds to meet these requirements, as many donor countries drag their feet over providing fund for this purpose; the need thus remains urgent for using funds and aid efficiently. Accordingly, the needs that must be met can be classified as follows:

1. Urgent humanitarian and sheltering needs: Tens of thousands of families had lost their livelihoods, assets, and/or homes, and continue to live in temporary shelters such as the schools of the United Nations Relief and Works Agency for Palestine Refugees in the Near East (UNRWA) and government schools, or with friends and family, or even in tents that are unsuitable for human needs in summer or winter. These need adequate shelters that preserves their dignity as well as their needs, in addition to securing their food and relief requirements. This is while bearing in mind that this period coincided with the start of the academic year for public schools and universities, which necessitates providing financial support for those affected, other than shelters and food aid.

2. Addressing chronic vital issues related to infrastructure, which have been addressed by international reports on several occasions, stating that GS would be “uninhabitable” by 2020 based on current living, infrastructure, and environmental conditions. These in turn require radical and not temporary solutions, including improving the supply of electricity which has suffered from severe shortages throughout the past eight years, greatly hurting various segments of society.

Water levels in the underground aquifers have dropped, in tandem with the rising salinity and contamination, thus making around 90% of drinking waters unsuitable for human use or even irrigation. This means that agricultural products and fishery products do not comply with the safety standards for human use. This in addition to ground and air pollution, exacerbating the accumulating environmental problems.

According to UNRWA estimates, there are tens of thousands of families still living in schools, and are unable to find a suitable alternative. In parallel, a large number of students will be unable to join their classes on time with the start of the school year, and thus, a significant segment of students will be deprived of their right to learn for an indefinite period of time.

3. Starting to fulfill relief and sheltering requirements mentioned above, in addition to addressing the problems of infrastructure, will create better conditions for restoration and reconstruction works. Hence, there will be new, more stable, and more reassuring investment opportunities, which will encourage implementing investment projects in manufacturing and services, with suitable profit margins.

4. It is important when classifying the areas of investment to adhere to human rights standards, set forth by international conventions. Among these is the right to a minimum standard of decent life, similar to what is available for all the peoples of the world, and the right to work that meets necessary human needs such as water, food, and medicine. This is in addition to the right to learn adequately, and the right to adequate healthcare away from any epidemiological or disastrous conditions.

5. It is also important to say that the steps that precede reconstruction programs must be based on a comprehensive plan to stimulate the GS economy and development process, in harmony with the general Palestinian economic development plan. This would form a cohesive and durable economic basis for the Palestinian national project and the economy of the Palestinian state. [3]

In conclusion, and in light of the extremely critical GS economic conditions, there is a crucial need to assign economic recovery and reconstruction to a central body. It should be able to undertake these tasks within a sound plan, where various segments and stakeholders in society would participate, away from factional, partisan, and organizational considerations, and with active international participation and support, in a way that would boost Palestinian economic growth in both the West Bank (WB) and GS.

[1] United Nations Conference on Trade and Development (UNCTAD), Occupation of the Palestinian territory jeopardizes economic viability of two-state solution, Press Release, Geneva, 3/9/2014.
[2] Al-Hayat al-Jadidah newspaper: Issue: 6757, Ramallah, 2/9/2014.
[3] Palestine Economic Policy Research Institute-MAS, “The Challenges of the Reconstruction and Economic Recovery of Gaza Strip Following the Recent Israeli Military Aggression,” Ramallah, 3/9/2014. Click Here

⃰ Prof. Dr. Moein Muhammad Ragab: Economics expert who is living in GS. Ragab studied his Ph.D. in the Faculty of Commerce at Alexandria University and he is the former dean of the Faculty of Economics and Administrative Sciences at al-Azhar University in GS. He writes about the economic situation in the WB and GS in the annual Palestinian Strategic Report published by al-Zaytouna Centre.

Al-Zaytouna Centre for Studies and Consultations, 23/9/2014