“There is no economic solution for a political problem”: The state of the Palestinian economy
“There is no economic solution for a political problem”: The state of the Palestinian economy
An Israeli airstrike late Sunday night started a fire in a camp for displaced Palestinians in Rafah, which killed at least 45 people and injured another 200, according to the Gaza Health Ministry. Israel’s Prime Minister Benjamin Netanyahu called the airstrike a “tragic mistake.”
The attack has intensified calls from world leaders for Israel to stop its military assault on the southern Gaza city of Rafah. On Friday, judges at the top United Nations court ordered Israel to do so. The court also reiterated calls for the release of hostages held by Hamas since the militant group’s deadly attack on Israel on Oct. 7.
Over 1,000 civilians and military personnel were slain during Hamas’ Oct. 7 assault, while the Israel Defense Forces — pursuing its stated aim of eliminating Hamas — has killed roughly 35,000 people, according to third-party figures published by the United Nations.
The war has also ravaged the Palestinian economy, pushing an estimated 1.7 million more people into poverty.
For more on the state of the Palestinian economy before, during and potentially after the war, “Marketplace Morning Report” host Sabri Ben-Achour spoke with Ibrahim Shikaki, a professor of economics at Trinity College in Connecticut, who has conducted economic and policy research in the Palestinian territories.
The following is an edited transcript of their conversation.
Sabri Ben-Achour: A lot of key infrastructure in the West Bank is controlled by Israel — water, borders, customs, roads. Gaza’s borders are, of course, controlled by Israel and Egypt. I know this is a very broad question, but what does or did the Palestinian economy look like in that environment?
Ibrahim Shikaki: It didn’t look great. Since the occupation in 1967, one of the first military orders of the Israeli military commander were actually economic. So they decided to close off all the banks, they had very restrictive procedures on importing and exporting. So basically, Palestinians had very little productive sectors to work in in the local Palestinian economy. Really, the Palestinian economy since 1967 has been extremely dependent on the Israeli economy. First, in terms of the labor market. So in the first 20 years of the occupation, you had that percentage of Palestinian workers working in Israel jump from basically 0% to 40%. But you also had, even until now, up to 70% to 80% of all trade, imports and exports, are also with Israel. So even after the establishment of the Palestinian Authority in the early 1990s, a lot of those dependencies were still entrenched and you just had new dependencies on international aid and then private debt.
Ben-Achour: The movement of Palestinian labor has been almost cut off into Israel. What has that meant for the two economies?
Shikaki: It’s had a very large impact. I mean, obviously, when we’re talking about the Gaza Strip, really since 2007, there haven’t been a lot of Palestinians who are working in the Israeli economy. As for the West Bank, well, it has meant a lot. The Palestinian Central Bureau of Statistics have data about the differences between the third and the fourth quarter of 2023, and they’re very telling. So in the third quarter of 2023, you had roughly 150,000 Palestinians from the West Bank working in the Israeli economy. In Quarter 4, that went down to 17,000. So from 150,000 to 17,000. All those people, they do not have a source of living anymore. And what that has meant is also that the transfer of money, so during that third quarter of 2023, the Palestinians who are working in Israel brought back roughly $1 billion of income. In the fourth quarter, that was around $79 million. So that impact on Palestinian workers, obviously, this macroeconomic impact on what we call aggregate demand is going to have a continuing level of ramifications on, not just on the macroeconomic aspects, but also the livelihood and the ability of Palestinians to literally survive.
Ben-Achour: Is there an opportunity for exports to assist there? How do exports work in the Palestinian economy?
Shikaki: Yeah, so you have two aspects there, right? I mean, the first has to do with control over borders. And that’s obviously one of the main problems that you have. Israel has complete control over any borders, in the West Bank, obviously, in the Gaza Strip as well. You had that part that’s related to Egypt, but that was also very highly coordinated with Israel. But really, the second problem has to do with whether we are producing. So what we call the productive sector— so manufacturing, agriculture, that actually produce the goods that we would export, for example — those have been diminishing since, really, 1967. And so what you’ve had is the rise of specific, what I call occupation-circumventing economic activities. The type of economic activity that now exists in the West Bank, and before October in the Gaza Strip, are basically economic activities that just entrench that dependency. There’s very little that is being produced, and there’s very little control over borders, which basically means that is going to be a very weak tool in terms of development in the future.
Gaza’s tunnel economy
Ben-Achour: There is natural gas off the coast of Gaza. Is that a potential resource for Palestinians, either in Gaza or the West Bank?
Shikaki: It could be, it absolutely could be. Tourism could be. There are specific light manufacturing where you do have some advantages. But we all go back to the same thing, right? There is no economic solution for a political problem. And this is something that I think both the international community, but also, at some point, the Palestinian Authority, really needs to face and grapple with. You cannot have development under occupation. And so the idea that we can think of future sectors that might play a role is very well, but really, you need to think of the political situation. And right now, looking at Gaza, you need to think of the Palestinians that, similar to 1948, at least if you listen to Israeli officials nowadays, the stated goal is to push them off their land. So I do feel that a lot of this discussion, even today, about rebuilding Gaza kind of misses the point of let’s talk about what’s going right now to those Palestinians who live in that area. And then we can talk about the possibility of certain sectors, of certain advantages that Palestinians can take care of.
Ben-Achour: One argument that some Israeli officials have made is that, you know, Gaza, following the Israeli withdrawal, could have become another Dubai in the Middle East, but instead it chose to invest in tunnels. What are your thoughts on that idea?
Shikaki: I mean, I think I have two thoughts, honestly. The first is, it did at some point — after the 1990s, after the political process, if you look at what happened to Gaza versus what happened to the West Bank, the jump that Gaza, the Gaza Strip in general, but particularly Gaza, made was actually larger than that in the West Bank. You had, you know, what would be the equivalent to skyscrapers. You had all of these luxury hotels and you had businesses flourishing. So you did have it at some point. But, again, we go back to the politics. Within three, four years of that political process, right? It was another cycle of violence.
You know, in 2006, Hamas won the elections that were, you know, certified by all international observers. Within six months to a year, the international community decided to stop international aid, Israel decided to have a siege on the Gaza Strip. And so what I would say is, Gaza wasn’t given an option. I don’t know what would have happened. And the vast majority of tunnels that exist today, that initially existed, had to do with trade because there was a siege, because Israel decided, you know, Palestinians in Gaza are not allowed to have ketchup or chocolate or fertilizer for their farming, literally. Those are the things that were cut off from the Gaza Strip. Tunnels became the answer to that. So as we say in economics, sometimes we’d like to think that we can know what happens in the future. We can’t, but what we can do is look in the past and say, Gaza was not given that opportunity and those few years that it was, it actually was starting to be the, you know, the Singapore of the Middle East or wherever it was supposed to be.
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