Sam Bahour and Iyad Joudeh
Publication Date: 
Mon, 2007-07-30 03:00

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 Dec. 18, 2003. Then Prime Minister Sharon said: “If there is no progress toward peace in a matter of months, 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 stuck 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 million to $450 million into the Palestinian Authority from 1994 to 2000. From 2001 to 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 United States. Of those funds, less than five percent 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 Dec. 7, 2006, 12 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: “Seventy-five percent 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.

Eighty-five percent 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 percent.

Approximately 30,000 factory workers stand to lose their jobs (factory employees constitute 10 percent of those working in Gaza, and on average, each worker supports a family of seven. In Gaza, unemployment stands at 35 percent).

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 percent 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.

(Sam Bahour ([email protected]) and Iyad Joudeh ([email protected]), are managing partners of Applied Information Management and Solutions for Development Consulting, respectively, and based in Ramallah.)


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