By Alexander Baker
If former President Bill Clinton was right when he said it’s “the economy, stupid,” the Palestinians are in trouble.
Israeli Prime Minister Ehud Olmert’s recent invitation to Arab leaders for a peace conference in Jerusalem could give Israel and its neighbours a chance to sit down and talk. If the conference happens, one of these issues should be the Palestinian economy.
The economy is relevant because of the recent power-sharing deal between Fatah and Hamas, the terrorist group who won elections in January 2006. Many countries are deciding whether or not to renew funding to the Hamas-led Palestinian Authority, cut following their election victory. Canada, under Prime Minister Stephen Harper, was actually the first country to do so, cutting its $25-million contribution.
But with bloody clashes in the streets between Fatah and Hamas supporters, little money for the government to spend and massive unemployment, the West Bank and Gaza Strip are in trouble. There will be no end to this conflict, and the despair and hopelessness breeding in the Palestinian territories, without economic development. Palestinians need an option other than becoming a soldier for Hamas or Fatah, or a martyr in the intifada, and the only way to get the economy working will be international help and business investment – and Israel should help.
“I am the only foreign minister who comes to different states to ask the private sector and the government to help, not Israel, but the others,” said Israeli deputy Prime Minister and Foreign Minister Tzipi Livni in a speech to the Israel-Canada Chamber of Commerce.
She emphasized the role Canadian companies can play in the Palestinian territories’ economic development and how Canadians should look at investing there. Livni wants to get people interested in investing in Gaza.
But how realistic is it to expect the economy to develop and a service sector to emerge?
Palestinian unemployment today is hovering around 40 per cent, and, with a total population of about four million, the PA depends on $1.14 billion in annual aid money to survive and provide essential services.
The unemployment rate was lower before Hamas took over, but the global economic boycott exposed one of the Palestinians’ biggest problems: the PA itself employs 125,000 people, almost a quarter of the workforce in the territories, and pays out 40 per cent of all Palestinian wages. There are few other sources of jobs, even for those who want one.
By October 2006, less than nine months after the embargo began, the PA owed $500 million to civil servants but could not afford to pay their salaries. As a result, jobs were slashed and services cut. Much of the international aid that actually goes to the PA, rather than to NGOs operating in the West Bank or Gaza, goes to paying employee salaries.
However, there is some infrastructure for building a service sector. Almost three quarters of the territories’ GDP comes from the service sector – there were, for example, 77 hotels operating in 2005. This is an industry that cannot really hire any new employees, though, since the area is hardly a tourist attraction right now.
There are very few actual companies in Gaza or the West Bank. Most businesses are small, family-owned operations while the rest of the employed work in agriculture, growing olives or citrus fruits. A further 120,000 people work in Israel, either with a legal work permit or not. Very few make a good living, as the World Bank estimates more than 45 per cent live below the poverty line.
However, the picture is not all bleak. Infrastructure such as roads, electricity and water, despite intermittent destruction by the Israeli military, is relatively intact – the PA just doesn’t have the money to repair and maintain it. Furthermore, a recent agreement between Israel, the PA and Egypt could provide a building block for international investment. Israel agreed to allow Palestinian goods to be sent to Cairo for transportation, a welcome development for the agriculture producers who won’t have to see their food rotting outside a checkpoint.
Before any real economic recovery can take place, though, Palestinians need to have more internal freedom and control. There are constraints on trade and the movement of goods in the West Bank and Gaza, including military checkpoints, which can cause long delays and allow food exports to spoil, the lack of air or sea ports to transport goods, violence between Hamas and Fatah and the general conditions of oppression and stagnation. Of course, safety and security are essential before McDonald’s or Tim Hortons is willing to open up shop in downtown Ramallah.
This is where the chicken or the egg question comes in – Israel will not lift restrictions on goods and movement or open their checkpoints until the violence is stopped, and the violence is unlikely to stop until Palestinians see another way.