Latest Figures on Gaza and West Bank: More Gloom

By Colin MacKinnon

On Feb. 26, a first small test shipment of tomatoes direct from a Gazan producer arrived by air in New York. The shipper, Ahmed Abu Noga, a Gazan entrepreneur, has since managed to send some 15 tons of fresh tomatoes under a Palestinian label to the U.S. Mr. Abu Noga’s deliveries are something of an achievement, considering everything—barriers put up by Israel, Palestine’s lack of an airport, and the generally poor marketing contacts Palestinians have with U.S. consumers.

But this is no time to celebrate. Mr. Abu Noga’s feat is a rare positive sign among uniformly bad news from the Palestinian Territory. The latest figures, particularly for Gaza, are simply dismal.

Gazan Agriculture Declines

Gaza first. Agriculture is the mainstay of the Gazan economy. According to the latest numbers from the PNA Ministry of Agriculture as analyzed by U.S. officials, agricultural exports by volume from Gaza in 1997 were down more than a quarter from their levels in 1993, the year of that famous hopeful handshake, when the Israelis were actually occupying the place.

True, Israel is buying more Gazan produce than before. But the West Bank, which once bought 90 percent of Gazan produce, is now, thanks to the difficulty of dealing with Gaza, buying much less and the increased Israeli purchases don’t make up the difference.

Exports of fruits and vegetables, particularly citrus, have been hard hit. In 1997 Gaza shipped by volume less than 40 percent of what it shipped in 1990, a drop of some 100,000 tons a year. Grapes are the extreme case: in 1990 Gaza exported 542 tons of them, but in 1997 shipped only 14 tons.

While tomatoes and strawberries do seem to be holding their own, that’s only because new markets have opened up in the Persian Gulf.

Exports of cut flowers rose in the mid-’90s, but fell in 1997-1998 and the future for this niche product, to which some Gazan producers switched from fruits and vegetables, looks bleak. Profit margins for cut flowers have been disappointing. And flower growers have encountered other problems.

One such problem is Agrexco, the Israeli agricultural export agency. Agrexco takes up to 40 percent of the wholesale price of flowers as its marketing share. Although Gazan producers can legally bypass Agrexco, doing so is difficult: producers still have to pay for transport through Israel and for Israeli security inspections and have little foreign marketing savvy (Agrexco has plenty of that, as well as a large foreign consumer network).

WBGS Hard Hit in 1997

For the West Bank-Gaza Strip (WBGS) as a whole, 1997 saw a bad situation worsen. In 1995, according to the World Bank, about 20 percent of Palestinians living in the WBGS could be considered poor. (Camp inhabitants, as you might expect, had it worse: in 1995 some 30 to 35 percent of them were living in poverty.) At the end of 1997, though, 30 percent of the population as a whole—that’s everybody in the WBGS—was living in poverty and in the camps the figure was 40 percent.

From 1993 to the end of 1997, Palestinian incomes had fallen 20 percent. Unemployment had risen from 13 to at least 30 percent. Merchandise exports had been cut in half.

Private investment is down, too, from 19 percent of Gross Domestic Product in 1993 to 10 or 11 percent in 1997; almost all of the latest investment has been in the largely unproductive housing and real estate sector, and only 5 percent in plant and machinery.

The Israeli-PNA Customs Union

Part of the problem for the WBGS is the de facto customs union that Israel and the PNA established in 1994. The customs union forces the PNA to maintain the same tariff structure that Israel imposes. The Israeli agenda, predictably, is to protect Israeli industry, but, unfortunately, at the expense of Israel’s already impoverished “peace partners.” So Palestinians, who, for example, produce few electronics products and have to import them, must also accept the higher costs that protective Israeli tariffs put on such products. Israel is far and away the WBGS’s main trade partner these days. Fully 85 percent of the WBGS trade is with Israel, despite the PNA’s highly favorable trade agreements with the European Union and the U.S. The WBGS is a captive market of increasingly poor people.

Dependence on "Peace Process"

In a report published in March on Palestinian trade in goods, the United Nations Conference on Trade and Development notes that the Palestinian economy since 1993 has largely been dependent on how the "peace process" was faring. Optimistic periods have seen greater business activity and investment. Periods of stand-off—as now—have seen investment fall and incomes drop.

According to UNCTAD, Palestinian goods, which earned $400 million annually for the Palestinian economy 15 years ago, brought in only some $266 million in 1996. Exports to Arab states, which were bringing in over $100 million a year 15 years ago, had fallen to $30 million.

The Closure

International bodies—the European Union, the World Bank, the United Nations Development Program—put most of the blame for all this on the more or less permanent closure that Israel has imposed on the WBGS.

The World Bank calculates that losses due to closure in the 1994-1996 period were at least $2.8 billion. This, as Bank economist Nigel Roberts pointed out at a recent conference on the Palestinian economy, is equal to one year’s Gross Domestic Product for the WBGS ($1,500 for every man, woman and child in the WBGS) and more than the total peace windfall of $2.2 billion of disbursements from foreign donors and tax remittances from Israel during the same period.

In 1992, 116,000 Palestinians were crossing the border every day to work in Israel. By 1997 that figure had fallen to an average of 35,000. The loss in income has a double whammy effect: not only do Palestinians have less money (and so buy less and save less), foreign donors have felt compelled to divert about 25 percent of their project aid to emergency budget support and work-fare schemes. This means less investment in infrastructure and less income down the road.

The closures, however, are not the only reason for the decline in exports and the WBGS’s currently wretched economic performance. Land speculation has hit the WBGS and productive acreage has been sold off for real estate. World prices for produce are down. Palestinians have as yet developed little expertise at direct marketing. And in Gaza, at least, the over-drilling of wells and overpumping of water (much of it by Israeli settlements that occupy 40 percent of the land) have been hurtful. Gaza consumes 140-150 percent of its renewable water resources. This has led seawater to percolate into Gaza’s coastal aquifer and damage productive acreage.

What else? Well, bad administration and bad governance, import monopolies, cronyism in the PNA all conspire to drive down the economy.

A Bleak Future

According to the IMF, if there is no change in the status quo, the WBGS economy will grow by only 2 percent in 1998. But since the population is growing fast, perhaps 6 percent a year counting returnees, the net result will be a decline of some 3 to 4 percent in GDP and further impoverishment of the population by just that much.

And all this will have political ramifications, of course, none of them good.

Colin MacKinnon is contributing editor to the Washington-based Middle East Executive Reports.