The Palestinian Economy — a Palestinian Problem?

The media often implies that Israel is solely to blame for poverty in Gaza and the West Bank, while ignoring Palestinian responsibility for the situation.

For example, an Agence France Presse dispatch today suggests that Israeli security measures alone are responsible for the state of the Palestinian economy:

Owing to an almost uninterrupted army blockade of the territory during the five-year Palestinian uprising, Gaza labourers have been largely unable to cross into Israel for work.

Unemployment stands at around 45 percent and up to two-thirds of the population live in poverty, with Israeli military checkpoints hampering freedom of movement and goods inside the Palestinian territory.

However, a recent article in the San Francisco Chronicle, quoting the UC Berkeley-trained economist and Palestinian official George T. Abed, shows that the Palestinians themselves should be held accountable for their own economic situation, both in the past and looking forward.

Here are some excerpts:

… while the United States and other donors have pledged billions of dollars [for the Palestinians], a senior member of the Palestinians’ new economic team says the flood of money is largely unnecessary at this time — and some of it may be counterproductive.

“If you poured in a lot of financing at this time, it would not have a big impact. It would not be very effective,” said George T. Abed, who retired earlier this year from a senior position at the International Monetary Fund, then was appointed governor of the Palestine Monetary Authority. “Governance is poor. It would be wasted.”

Abed … said the view from inside the territories is different from the perception some may have from the outside. Although unemployment and poverty are rampant, Palestinian banks are overflowing with deposits, he said, and many wealthy Palestinian entrepreneurs living overseas are eager to invest in the territories.

The immediate challenge, according to Abed, is building a modern system to handle the existing capital efficiently …

The Palestinians are at a critical stage as they seek to recover from the effects of the nearly five-year uprising known as the intifada, the decadeslong Israeli occupation and the corruption and fiscal mismanagement of the previous Palestinian administration, led by the late Yasser Arafat.

In an Atlantic Monthly article titled “In A Ruined Country,” author David Samuels estimated that Arafat and his senior aides may have siphoned off as much as half of the $7 billion in aid to the Palestinian Authority. Samuels, citing an International Monetary Fund report, said Arafat may have personally taken $900 million just from 1995 to 2000, a figure that did not include the rake off from kickbacks and other forms of corruption.

In the long term, Abed said, private capital and internal reform will be more important than government contributions or funds from public institutions such as the World Bank if the Palestinians are to create a self-sustaining economy with jobs that rely on growth rather than aid.

“There are things that require funds, and things that require reform,” said Abed. “We can produce high single-digit growth in the first year or two of our administration if we can make those changes in things like the judiciary, education and the government.

“The Israeli withdrawal (from Gaza and the northern West Bank) will have little impact without the economic and other changes,” he added.

The Palestinians already receive the highest per-capita donor aid in the world, according to James Prince, a consultant to the Palestinian Investment Fund and co-author of a recent report, “The Economic Road Map: Beyond the Israeli-Palestinian Conflict.”

The funds, Prince said, have not done much beyond ensuring a minimum standard of living. But they have left the economy weakened because little of the money has been used to encourage private investment.

While the article offers valuable insight into the Palestinian economic situation, the reporter seems to miss the mark when listing the “decades long Israeli occupation” as a cause of Palestinian economic decline.

Speaking before the US Congressional Joint Economic Committee, Dr. Talia Einhorn, a Senior Lecturer-in-Law at the University of Manchester, discussed the developement of the Palestinian economy:

Prior to their occupation by Israel in 1967, the economies of the West Bank and the Gaza strip were underdeveloped and fragmented. There was no exchange between the West Bank and the Gaza Strip.

… In the whole area of the Occupied Territories there was only one modern factory.

… The overall manpower employed in industry has in fact decreased from 2500 in 1953 to 1782 in 1960.

In view of the weakness and problematic structure of the West Bank and Gaza Strip economies prior to the 1967 war, Israel could hardly be blamed for having distorted the Palestinian economy.

… By 1986 the number of Palestinians employed in Israel was estimated at 94,700, which amounted to 36% of the total labor force in the West Bank and Gaza Strip. In 1987 109,000 Palestinian workers, constituting almost 40% of the labor force, were employed in Israel. 61 Employment in Israel has been very meaningful from the point of view of the Palestinians: the income from Israel equaled a quarter of the GDP; most persons employed in Israel had no other source of income; more than half were sole providers of large families. Work was especially important for the residents of the Gaza Strip, where most of the population was urban, the economy less developed, the per capita GDP smaller, and rate of population growth – faster. From the Israeli point of view, the importance of the economic connection was much smaller. The 109,000 Palestinians working in Israel in 1987 constituted only 7.2% of the total labor force.

… During the first years of occupation the West Bank and Gaza Strip attained a relatively high rate of growth. The average annual growth of agricultural productivity was 12% in each of the first six years; average annual growth of industrial productivity – 15%

The first 20 years of occupation have brought about a pronounced improvement in the standard of living of the Palestinians. Private consumption per capita rose during 1969-1986 at an overall rate of 5% per annum. This is evidenced by economic indicators, such as increase and improvement of quality of the food consumed; housing conditions; ownership of private cars, refrigerators, television sets, cooking appliances, sewing machines, etc. According to the World Bank Report, 95% of the Households in Gaza had running water and 100% had electricity (compared with 3 percent for water and 14% for electricity in 1974). This does not relate to the disadvantaged refugee camps. However, the quality of water in Gaza is far from satisfactory and electric shortcuts occur all too often. In the West Bank 79% of the households have running water and 75% – electricity, compared with 24% with water and 46% with electricity in 1974.

Broadly speaking, the pattern of economic growth of the Occupied Territories since 1967 can be broken into four phases: very rapid growth until the mid-1970s; slightly less rapid growth until the early 1980s; stagnation until the onset of the Intifada (uprising) in December 1987; and decline thereafter.