The Gaza Strip and West Bank, including
East Jerusalem, are Israeli occupied lands that have brought
despair to all involved. The most recent chapter in this
historic saga was the overrunning of Gaza by Hamas
militants.As the world contemplates how to deal with this
latest episode, one thing is for sure, June 2007 will go
down in history as a turning point in the Palestinian
Israeli conflict.
Understanding whether this turning point
will bring about a serious improvement toward real stability
in the region can only be determined if a serious shift
takes place in how donors deal with supporting Palestinians
and how the international community deals with continued
Israeli constraints to Palestinian development. Center stage
in this analysis should be the Palestinian private sector
which is the only place where sustainable development can be
realized. As such, an integral part of every donor
intervention should include support to the Palestinian
private sector.
Britain’s outgoing prime minister, Tony Blair, wasted no
time in landing his next job – special envoy for what’s
called the Middle East Quartet, a group made up of the U.S.,
Russia, the European Union and the United Nations. He could
not have picked a larger challenge or a more volatile
conflict at a more sensitive time. Fresh in everyone’s minds
is the failure of the last person who held the job, former
World Bank President James Wolfensohn. Wolfensohn was a
person of international stature, untainted by the Iraq war
fiasco, a practical hands-on person, who entered the
conflict on an evangelical-like mission to break the
historic stalemate in the status quo and get things moving
toward reviving the Palestinian economy. It took Israel
merely one year to frustrate and marginalize Wolfensohn,
which led to his resignation in humiliation. Blair’s path
forward is definitely uphill, but windows of opportunities
may be pried open if a new approach is taken, an approach
based on sustainability and not only subsistence for
Palestinians.
Ever since the Israeli military occupation of the West Bank and Gaza Strip over
40 years ago, Israel systematically linked the occupied territory’s economy to
its own. Before the Oslo Peace Accords, this forced linkage was most apparent in
Israel’s restriction of Palestinian business and its controlling the freedom of
movement for Palestinian labor. For nearly a decade prior to Oslo, Israel issued
work permits to tens of thousands of Palestinian workers to allow them to enter
Israel to find work. Palestinian labor was found in Israeli construction,
agriculture, hotels and the like. Dealt with as a second class labor force,
Palestinian laborers were exposed to working conditions that allowed Israeli
businesses to benefit from offering lower wages without having to stringently
apply Israeli Labor Law. Many Palestinians workers even found themselves
building the illegal Israeli settlements that were threatening the existence of
Palestinian communities. For Palestinians, being able to work, anywhere, while
under Israeli occupation, was a matter of survival.
The Israeli occupation authorities also levied taxes on the
occupied people and used a portion of those taxes to flood the Palestinian areas
with Israeli made infrastructure and goods. This created further Palestinian
dependence on the occupier’s economy.
Contrary to the obligations embedded in the Fourth Geneva
Convention of 1949, the signatories of this key Convention -- the U.S., UK and
Russia (previously the USSR) included -- allowed for Israel, the occupying
force, to create a structural economic dependency of the Palestinian economy
while at the same time applying a maze of restrictions on Palestinian ability to
become economically viable. Instead of demanding from Israel the application of
international law, these countries, and others, continued reporting, year after
year, the Israeli violations of international law while simultaneously footing
most of the costs of occupation.
When the Oslo Peace Accords were signed in 1993, an economic
arrangement followed called the Paris Economic Protocol. Just as the Oslo
agreement itself kept intact the ultimate Israeli control over all key aspects
of Palestinian life, the Paris Economic Protocol institutionalized the
occupier’s economic interest in this bilateral agreement with the Palestinians.
After the Oslo agreements, state donor’s role in funding
Palestinians’ “development” turned into an international underwriting of the
Israeli occupation, reducing, and many times removing, the financial costs of
military occupation from Israel. In short, knowingly or not, donor funding had
an accomplice-type role in allowing the situation to reach where it is today.
For the most part, the Palestinian private sector is a
recent phenomenon. From 1967 until the Oslo agreements the business community
was nascent and deeply connected with Israeli suppliers, the only suppliers
Israel would allow to have direct contact with the Palestinian community. The
number of private Palestinian companies was low and the depth of know-how was
shallow. Export-focused thinking was non-existent given Israeli restrictions and
constraints. Nevertheless, the seeds of the locally grown private sector, which
was able to maintain itself while the entire world was turning a blind eye,
became the foundation on which the Palestinian business community was built.
With the advent of the Oslo Peace Accords the Palestinian
private sector took on a new dynamic, one that was much more complex. A handful
of investment firms were established that facilitated a flow of capital into the
economy. With the newly created hope that the Oslo process was going to result
in the end of Israeli military occupation, many Palestinians came to Palestine
to work, which injected in the market new skills and expertise. This new
professional class was global in scope and diverse in know-how, since their
skills came from all four corners of the world, where the Palestinian Diaspora
is scattered.
As new private sector firms started to be established –the
first Palestinian telecommunications company, new hotels, and an information
technology sector – Palestinian students began focusing on the new skill sets
needed to be absorbed in the labor market. The Palestinian economy, although
tiny, was a rapidly shifting economy, moving from traditional practices to
modern ones, from an agricultural base to a service sector and export-orientated
one.
As firms started to realize that they had common interests
and concerns, especially with regards to dealing with the newly formed
Palestinian Authority as well as the continued Israeli structural constraints
that were still being applied, trade associations started to be formed. The
majority of these associations were created in a dynamic that merged existing
sector players and know-how with the newcomers that came from a different
vantage point to economic development. Yet other associations brought firms and
people together for the first time to establish brand new sectors in Palestine,
such as the Palestinian Information Technology Association. All of this
redefined the Palestinian focus on economic development and enriched the
engagement of these sectors with the local environment and the dynamic of donor
interventions which were driving the bulk of business activity.
Although donor money was the gas allowing the Palestinian
economy to chug along, at no time did donors view the development of the private
sector as the highest priority in building a viable Palestinian society. Donors
assisted in the creation of sector associations and provided firm level
assistance to some extent, but a strategic approach to the private sector never
materialized. Many in the international community were quick to criticize the
growing number of the Palestinian public sector workers, but few, if any, had
the foresight to see that a strong Palestinian private sector was the only way
to provide an alternative to public employment.
The international community collectively and closely
followed the Israeli adoption of a policy of separation, which was publicly
declared in a speech by past Israeli Prime Minister Ariel Sharon made in a
conference at the Herzliya Conference in December 18, 2003. Then Prime Minister
Sharon said: “If there is no progress toward peace in a matter of months, then
Israel will initiate the unilateral security step to disengage from the
Palestinians.” This unilateral separation policy immediately materialized in a
drastic reduction of Palestinian labor allowed into Israel, from more than
160,000 in the early 1990’s to nearly 20,000 in 2003. Israeli officials also
publicly announced that they intended to reduce the number of Palestinian
workers allowed into Israel to zero by 2008. While the most visible indication
that Israel was strategically changing gears was the acceleration in the
building of the Separation Barrier on West Bank lands, there are realistic
expectations that the separation concept will soon materialize in many other
areas such as health, trade, banking services, telecommunications,
transportation and many others. With the absence of any strategic alternatives,
the unilateral Israeli implementation of separation can only lead to total
collapse of the nascent, but already exhausted, Palestinian private sector.
All the while Israel was bulldozing forward, the Palestinian
private sector buckled down and took the brunt of the Israeli pounding of the
Palestinian community. Being, for the most part, dealt out of the developmental
paradigm, the Palestinian private sector was left on its own to deal with the
Israeli effort to force Palestinian society to its knees. After being
structurally linked to the Israeli market for decades, Israel’s decision to
unilaterally separate, or ‘disengage’ as it was called, from the Palestinians
came at a time of utmost instability. The elimination of Palestinian labor that
was employed in Israel increased the unemployment rate in the West Bank and Gaza
overnight. The Separation Wall’s land grab separated farmers from their lands,
causing strains of enormous magnitude on Palestinian agriculture. The Israeli
military and political actions to weaken the nascent Palestinian central
‘government’ left the economy in a free fall. With security and economic
conditions becoming intolerable, Palestinian emigration, or desire thereof,
peaked. Palestinians held elections in hopes of getting things back on track. As
a reply to the election results, Israel installed a policy of denying entry to
foreign nationals, Palestinians and otherwise, which forced many skilled workers
out of the country and struck a severe blow to the education sector, which
employed many foreign nationals. The list of Israeli actions to weaken
Palestinian society goes on and on but all with a clear purpose: to stunt
Palestinian development and prohibit Palestinian steadfastness, economic or
otherwise.
Now, after the events in the Gaza Strip last month, we hope
the international community has understood a key lesson: that the Palestinian
private sector’s role in sustainable development is not a side show, but rather
the only concrete platform that can create a viable Palestinian society. On
average, donors annually injected $350-450 million into the Palestinian
Authority from 1994-2000. From 2001-2007, the amount averaged about $650 million
annually. This amounts to over $7 billion, more per capita than anyplace in the
world except for Israel, which is heavily subsidized by the U.S. Of those funds,
less than 5% were invested in private sector development. Even with this meager
donor support, the private sector has proved its stamina and resilience in the
face of crisis. Palestinian private sector achievements may be found in every
sector and many seeds of a stable economy have been planted, but now need
nurtured. Productive economic sectors have been organized, firms are now experts
in crisis management, and a greater understanding of the limitations of economic
growth while yet under Israeli occupation has been internalized.
The word “viable” has been used and abused in trying to
define what a Palestinian state should be. Even President Bush’s new found
interest in realizing a Palestinian state comes with the requirement for it to
be “viable.” What does “viable” mean to Palestine? The viability of any future
Palestinian state must come within the context of a sustainable private sector,
one that can create sustainable job opportunities, develop competitive products
and services for the local market first, and an export market as well. The
Palestinian private sector must be able to absorb Palestinian university
graduates and by establishing a knowledge-based thrust in our economy while also
absorbing the tens of thousands of construction workers that Israel abruptly
pushed into unemployment after forcing them to be linked to the Israeli economy
for decades.
Viable development must be seen through different lenses
than that of relief. On December 7, 2006 twelve UN agencies together with 14
NGOs operating in the occupied Palestinian territory launched an emergency
Appeal for $453.6 million to help meet increasing Palestinian humanitarian needs
in 2007. This is the largest appeal for emergency humanitarian assistance ever
launched in occupied Palestinian territory and the third largest in the world.
The backdrop of this appeal was summed up by Kevin Kennedy, the UN’s
Jerusalem-based Humanitarian Coordinator who said, “Two-thirds of Palestinians
in the West Bank and the Gaza Strip are now living in poverty. Growing numbers
of people are unable to cover their daily food needs and agencies report that
basic services such as health care and education are deteriorating and set to
worsen much further.” This was all before last month’s events in Gaza, which are
only exacerbating the humanitarian crisis.
With no political horizon with the Israelis, and after
suffering the shock, and bleak aftermath, of recent events in Gaza, the private
sector in Gaza must not be forgotten at this crucial moment. Gisha, an Israeli
Legal Center for Freedom of Movement, just released shocking data about Gaza’s
economy, post-Hamas overrun. They state that:
“75% of Gaza's factories have shut down because of the
closure of the borders. The rest of the factories are operating on a limited
basis, on borrowed time, until the stocks of raw materials are exhausted.
85% of Gaza residents are already dependent on food aid –
and the number is growing.
There is a serious shortage of raw materials, including
flour and sugar for household and industrial consumption, and prices of raw
materials have risen between 15% and 34%.
Approximately 30,000 factory workers stand to lose their
jobs (factory employees constitute 10% of those working in Gaza, and on average,
each worker supports a family of seven. In Gaza, unemployment stands at 35%);
Israel erased from its computers the customs code used to
identify goods entering Gaza and issued orders not to allow any imports into
Gaza, with the exception of humanitarian goods, such as donations of food,
medicine and medical equipment.”
Gisha concludes, “This policy is destroying the business
sector, creating a new welfare regime in Gaza, and turning growing numbers of
Gaza residents into dependents on international welfare agencies and religious
charities. As of today, 87% of Gaza residents live below the poverty line. The
opportunity to earn a living with dignity and to build a properly-functioning
society is disappearing. According to the chairman of Israel's Association of
Industrialists, Shraga Brosh, "the economic boycott on the Gaza Strip …will
result in a humanitarian disaster, fueling flames and leading to deterioration
of the security situation – a situation that will be destructive to the Israeli
economy.”
The situation is volatile. Internal Palestinian politics are
being put in the limelight as if the continued Israeli military occupation is an
innocent bystander in creating the conditions for the Palestinian social
collapse. The donor community has a historic responsibility to Palestinians,
especially after so many years of observing the Israeli occupation from afar and
a decade of footing the bill as Israeli actions continue unabated. The challenge
to donors today is to convert assistance to the Palestinians to sustainable
assistance, equal in priority to relief and humanitarian assistance, but
sustainable in a way that creates an enabling environment allowing the private
sector to assume its natural role of becoming the foundation of a future state.
The writers are Sam Bahour and Iyad Joudeh,
Managing Partners of Applied Information Management and Solutions for
Development Consulting, respectively, and based in Ramallah.
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