Information Brief: The Gaza Economy

An Israeli soldier looms over Palestinian farmers as they are forced to destroy their produce due to Karni closing, February 2006. (Wasem Saleh/MaanImages)

Overview: 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 man standing 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 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 poverty[x] (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 2,137 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 - 5.5 to 6.0 children per woman - 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.

This Palestine Center information brief does not necessarily reflect the views of The Jerusalem Fund.

Related Links

  • BY TOPIC: Cutting Aid to Palestine (30 March 2006)
  • Gaza food crisis (19 March 2006)

    [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.
    [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.”