Chapter Two: Towards an independent Palestinian economy in the Gaza Strip – Obstacles and options If one turns to the media to try to understand what life is like in the Gaza Strip today, how its residents make a living and what the economic situation is there, two different and opposing pictures emerge, especially in the past year. In one image Gaza is a giant prison, and its residents, malnourished and helpless, face a severe humanitarian crisis. In the second image, Gaza is portrayed as experiencing economic growth, even a construction boom, following Israel's removal of the closure. The truth, as usual, does not lie in either of these extreme versions of the story. While it is true that there is no shortage of food in Gaza, poverty has intensified due to years of closure and restrictions on movement. More than 70 percent of Gaza residents receive humanitarian aid today19, and the official unemployment rate is at 28 percent and rising20. In this chapter we will attempt to show what led to this situation. We will survey the political, diplomatic and security-related circumstances that influenced the economy in the Palestinian territory, looking in particular at the economy of the Gaza Strip from 1967 to the present day and offering data to illustrate the changes that took place. This overview will encompass five periods, which we have defined on the basis of events that are generally considered milestones in Israel’s policy toward the Palestinian territory. A truly comprehensive and in-depth analysis would require a much broader scope than is afforded by a single chapter in a report such as this one. We will concentrate here on restrictions on movement into and out of the Gaza Strip, their influence on Gaza’s economy and on potential for economic development should restrictions be lifted. Our central argument in this chapter is that the ability to engage in long-term economic development has been denied to Gaza’s residents for the entire period of Israel’s rule over the area. At the end of the chapter, we will present a series of recommendations we have compiled from experts concerning the ways in which Israel could act to remove the remaining obstacles to Gaza’s economic development, thus allowing creative and productive forces in Gaza to usher in a new horizon of prosperity and well-being for its residents. 19 Analysis and cross-checking from the World Food Programme (WFP) and from the United Nations Relief and Works Agency (UNRWA). 20 As of the third quarter of 2011; source: Palestinian Central Bureau of Statistics (PCBS). 14 Restrictions on movement 1991 – 2011 vs. GDP per capita in US dollars 1991 Revocation of the “general exit 2006 Hamas wins elections. Increased permit” from the occupied Palestinian restrictions imposed on movement of people: territory. Palestinian residents are required to “Residents of the Gaza Strip are to be denied obtain individual permits in order to enter Israel. entry other than for exceptional humanitarian reasons”. 1993 The Oslo Accords. Agreement on arrangements for securing freedom of movement. In practice: a wave of terrorist June 2007 Following Hamas’ takeover attacks and full closure on the occupied of Gaza. Closure as part of an “economic Palestinian territory. warfare” policy which includes severe restrictions on the transport of goods into and out of the Gaza Strip. 1995 Electric fence built around the Gaza Strip. Full closure is periodically imposed on the Gaza Strip (until 2000). December 2008 Cast Lead. Widespread destruction of infrastructure in the Strip. 2000 The Second Intifada. Cancellation of all existing exit permits. New permits are issued only for laborers, merchants and patients June 2010 Following the Gaza flotilla. undergoing treatment in Israeli hospitals. The security cabinet announces a number of Increased restrictions on transport of goods. measures easing the closure. 2001 Gaza’s international airport is bombed. December 2011 Restrictions continue on marketing goods to the West Bank and 2005 The Gaza “Disengagement Plan” Israel, on movement of people between Gaza is implemented. Control over land crossings, and the West Bank and entrance of building airspace and territorial waters continues. materials into the Gaza Strip. GDP (Gross Domestic Product) in Gaza | GDP in the West Bank 1,925 1,875 1,838 1,730 1,72 4 1,692 1,5 79 1,581 1,483 1,472 1,475 1,451 1,457 1,460 1,443 1,307 1,224 1,336 1,327 1,290 1,294 1,257 1,258 1,203 1,104 1,103 1,098 997 1,043 902 886 877 807 787 1996 2006 1998 1999 2002 1995 1994 1997 2008 2009 2010 2004 2001 2005 2000 2007 2003 Source: Palestinian Central Bureau of Statistics (PCBS) 1967-1991 - Fostering dependence between Gaza's economy and that of Israel The occupation of the West Bank and the Gaza Strip in 1967 sparked a debate in Israel over the economic policy Israel ought to pursue vis-à-vis the Palestinian territory. The approach taken by 15 then-Minister of Defense Moshe Dayan envisioned interaction between the two economies, whereas the approach preferred by then-Finance Minister Pinchas Sapir supported segregation between them. Dayan’s approach won out eventually and the connections between the two economies deepened. Israel, via its Civil Administration, collected taxes and provided basic services, but the level of investment in infrastructure remained relatively low. A key characteristic of that period was the freedom of movement enjoyed by people and vehicles throughout the area under Israel’s control. This reality led to tens of thousands of Palestinians’ working within the Green Line (i.e., in Israel within its pre-1967 borders), mainly in the construction industry. Nonetheless, commercial freedom was not total. Pressure from various sectors in Israel led to a policy of protectionism and defending Israeli products from Palestinian competition. The absence of restrictions on the labor force had a positive influence on the Palestinian economy - Palestinian laborers returned home from jobs in Israel with cash in hand. This income, for various reasons, was invested mainly in building homes. Over the years, the Palestinian economy became increasingly dependent on Israel and also highly vulnerable to economic fluctuations in Israel and to security-related and other restrictions that Israel imposed. 1991-2000 - First steps to separate the economies In the early 1990s, Israel's policy underwent a change with respect to the Palestinian territory. Following the start of the First Intifada in 1987, Israel began placing restrictions on the freedom of movement of people and on the transfer of goods. In 1991, Israel canceled the “general exit permit” and began demanding that Palestinian residents acquire individual permits in order to leave Gaza21. Under the Oslo Accords signed in 1994, it was decided that there would be a phased transfer of power to the Palestinian Authority, including concerning decisions about financial policy in the territory. In addition, it was decided that the area within 20 nautical miles of the Gaza coast would be open to Palestinian use for fishing, recreation and economic activity22. Since it was agreed by both sides that determination of the border between Israel and the Palestinian Authority would be postponed until final status talks, it was not possible to create separate customs regions23. Hence it was decided that the two regions would share a joint "customs envelope" and that Israel would collect customs duties and value-added tax on imports to the Authority’s territory on behalf of the PA, monies which until then had been added to Israel’s treasury24. According to Prof. Ephraim Kleiman, who was a member of the Israeli negotiating team, the agreement was signed because both sides had an interest in the economic development of the Palestinian territory. 21 From a joint report by PHR-Israel and Gisha, “Rafah Crossing: Who holds the keys?” March 2009, which may be downloaded from Gisha's website at www.gisha.org, (hereinafter: Rafah Crossing). 22 From a report by the United Nations' Office for Coordination of Humanitarian Affairs, "Between the Fence and a Hard Place" August 2010: http://www.ochaopt.org/documents/ocha_opt_special_focus_2010_08_19_english.pdf (hereinafter: Between the Fence and a Hard Place). 23 From an interview with Prof. Ephraim Kleiman by Gisha representatives, 14.9.2011. 24 The tax monies that the Civil Administration collected and the VAT on sales by Palestinians to Israelis were added to the treasury of the Civil Administration; the tax monies that Israel collected on imports via Israeli ports and the VAT on sales by Israelis to Palestinians were added to the Israeli treasury. 16 It was in this atmosphere of optimism, sometime later, that began a wave of suicide bombings and a closure of the Palestinian territory was declared. The closure on Gaza was enforced with particular effectiveness beginning in 1995, with the construction of an electronic fence around the Strip. Passage was also prevented from time to time even for permit holders, during the imposition of “absolute closures” on Gaza. Restrictions on movement during the Oslo period were determined against the backdrop of two opposing trends in Israel. On the one hand, the political process aimed to partition the territory, while creating a zone relatively free of restrictions on the movement of goods and people. On the other hand, the volatile security situation put pressure on decision-makers and the security establishment to make increasing use of movement restrictions as a means of defense, deterrence and punishment. 2000-2006 - From an economic discourse to a security discourse In 2000, with the failure of the Camp David talks and the outbreak of the Second Intifada, the peace process had reached an impasse and the economic discourse of the 1990s was replaced entirely with a security discourse.