The Economic Impact of the Conflict on Israelis and Palestinians

Occupation and Aid

By Shir Hever
Alternative Information Center (AIC)
February 6, 2007

This paper was presented by AIC economist Shir Hever, at the United Nations Seminar on Assistance to the Palestinian People, held in Doha on 5-6 February 2007.

There is no need to go into details, once again, about the extensive damage caused to the Palestinians by the Israeli occupation forces. We have heard much already of the mounting poverty rate, that GDP has fallen by 9% during the first half of 2006, that 25% of the Palestinian work force is suffering from a severe loss of income due to the sanctions on the PA, and that welfare payments have fallen by US$180 million. Moreover, Per-capita consumption in Palestine has fallen by 12%. Deep poverty is reaching alarming proportions, in Gaza it is already at 79.8%. Additionally, food insecurity is also at very high levels, reaching up to 41% in Gaza.

This information is readily apparent from the UN and World Bank reports. But, in this talk, I would like to focus on two separate questions.

One, what are the economic interests behind the devastation of the Palestinian economy?

Two, what can we expect to see as the long-term consequences of the occupation on the Palestinian economy?

1. Israeli Interests

Due to the “Paris Economic Protocols,” signed as the economic appendix to the Oslo agreements, Israel enforces a customs union on the OPT, and only goods moving between Israel and the OPT are exempt from customs while Israel alone has the right to collect customs. At the same time, Israel ’s promise to allow Palestinian workers to enter Israel freely and work there remains unfulfilled.

The result of Israel ’s devastation of the Palestinian economy, accompanied by severe limitations on the movement of people and merchandise, is that the Palestinian economy has become hostage to the Israeli economy.

The Palestinians’ ability to work, produce and earn an income has been severely limited, and the only thing staving off massive hunger and disease is the emergency humanitarian assistance coming in the form of foreign money. The current official unemployment level in the OPT is 30%, but unofficial unemployment levels are much higher. In fact, only 31% of working-age Palestinians have any kind of employment.

At first glance, it seems that this humanitarian assistance is a blessing to the Palestinians, as it supports a minimum standard of living and prevents further disaster. However, the aid is in fact co-opted by Israel as a source of income that helps fund the occupation.

Whenever Palestinians import goods using this foreign aid, they must either buy from Israeli companies or buy from international companies and pay customs to the Israeli government (as noted, 73% of all imports to the OPT come from Israel). Even when goods from Jordan or Egypt might be available at cheaper prices, administrative hurdles on the movement of goods and customs force Palestinians to buy the more expensive Israeli products.

Meanwhile, Israel maintains control over utilities (such as water, electricity and phone services) in the OPT and in 2004 alone, confiscated US $15.8 million from aid sent to the OPT for utility bills owed by Palestinian municipalities. A recent report showed that Israel charges exorbitant prices for these utilities; despite the low income of the Palestinians, they actually pay more for electricity than Israelis.

Foreign aid to the OPT, then, effectively perpetuates the situation in which the Palestinians are a nation of consumers who are unable to produce and unable to compete with the Israeli economy. Israel ’s government and various Israeli companies reap the profits, while the international community pays the bill. The Palestinians’ desperate need is turned into a lever to promote the prosperity of their occupiers.

Furthermore, the humanitarian foreign aid to the OPT temporarily relieves Israel of the need to face its responsibility for destroying the Palestinian economy, and allows Israel to continue its assault on the OPT without having to answer to the international community for creating a humanitarian disaster.

But despite the economic benefits it gains, Israel also interferes with the delivery of humanitarian aid to the Palestinians. The interference is so great that U.N. agents have complained that "we don't know of another conflict area in the world where we've had these problems - even in Kosovo.” UNSCO claims that while aid is currently indispensable, closures, which increase humanitarian deprivation and make aid more necessary, also reduces the effectiveness of aid by blocking access to those in need. The obstacles placed by Israeli authorities on the delivery of humanitarian assistance is evidence that international aid does indeed empower the Palestinians in certain ways, and that it does threaten Israel’s continued control over the OPT, even as it perpetuates it. But while piling on barriers that block aid from Palestinians and Palestinians from aid, in its public face to the international community, Israel acts fervent in its support of humanitarian aid.

Early in 2004, Israel ’s defense minister held a meeting with representatives of the donor countries and international organizations working in the OPT, and asked them to pull together and increase their donations to prevent the complete collapse of the Palestinian Authority. He asked them not to abandon the OPT now, because “we cannot shut our eyes to the deterioration of the Palestinian Authority, which could result in the disintegration of the Authority and its institutions, and will undermine the chances for peace.”

This tone has changed, following the election of the Hamas to the PA government, and Israel immediately called for international sanctions on the democratically elected Palestinian government. A few weeks afterwards, it became apparent that the sanctions were working all-too well, and Israel found itself scrambling to restore aid to the Palestinians, in order to avoid a humanitarian catastrophe among the population under its responsibility, without actually paying for it.

2. Consequences to the Palestinian Economy

Despite all that has been said above, however, the Israeli economy, as a whole, does not profit from the occupation. Israelis are paying (even after including various forms of income from the occupation), about US$ 9 billion every year to maintain the settlements and Israel ’s military control over the Palestinians. The Israeli economy is experiencing great difficulties as a result of this long-enduring expenditure. Only a handful of arm dealers, real-estate speculators and construction companies, as well as the settlers themselves, reap economic benefits from the occupation.

The situation of the Palestinian economy is clearly worse, and heading steadily towards further deterioration. The international donations during the 1990s, intended to foster the development of an independent Palestinian economy, were countered by Israeli measures, resulting in the monies achieving no actual development. The donors, however, have yet to demand restitution from the Israeli government for their squandered investments, so Israel has yet to suffer any consequences for its interference.

However, as the Palestinian economy is denied any any ability to develop or gain independence, and as the cost of the occupation continues to weigh heavily upon the Israeli economy, we begin to see a new trend in the economic structure of the occupation.

It appears that the prospects for an independent Palestinian state, economically speaking, continue to recede. At the same time, the complete evacuation of all the settlers from the West Bank, though required by international law, seems increasingly difficult for the Israeli economy to bear.

A new direction that is gradually (according to recent polls) gaining support among the Palestinian population, is a renewed turn towards the idea of a one-state solution. A solution which will obviously include the full implementation of the Palestinian refugees’ right of return, full citizenship to all the people living in Palestine and compensation to the Palestinians for confiscated lands.

Israel’s responsibility for the wellbeing of the Palestinians is not diminished by its disregard for their lives, and the debt of Israel to the Palestinians continues daily to swell. It can only be paid in full once the occupation ends.