Al-Ahram Weekly – 26 September 2002
The luxury Renaissance hotel in Nazareth, completed only months before the outbreak of the Intifada, is perched on a dramatic cliff above the Jezreel Valley in the Lower Galilee. Designed to accommodate pilgrims visiting the town in which Christ was raised, there are 250 air-conditioned rooms, a large outdoor swimming pool, and bars and restaurants with spectacular views of Mount Tabor.
But the Renaissance, like most hotels in Israel, has barely had an occupant in the past two years. This month the management announced that it was to be put to new use. It is to become a detention centre for foreign workers, mainly Thais, Filipinos, Koreans and Nigerians, whose work permits have expired and are due to be deported.
The fate of the Nazareth hotel neatly illustrates the plight of the Israeli economy, and more especially the tourism industry, since the outbreak of the Intifada. As the flow of visitors has shrunk to a small trickle — mainly Jews coming to see relatives — hotels, cabs, tour companies, restaurants and airlines have all been relentlessly squeezed.
Last month the Hotel Association, representing 55 hotels, launched a $300m compensation suit filed in a Tel Aviv court against the Palestinian Authority for losses sustained as a result of the Intifada.
But the effects have spread much wider. Finance Minister Silvan Shalom recently told the government that the total damage inflicted on the economy during the first year of the Intifada was estimated at nearly $5bn, with the loss of 80,000 jobs. The figures for the end of the second year are certain to be worse. Waves of suicide attacks inside Israel have stopped Israelis going into town centres, killing business trade. And even more damagingly lack of confidence among investors has prompted many to pull out capital, particularly from the hi-tech industries in which Israel specialises.
Then there is the cost of the military campaign itself. Despite huge sums of aid injected by the Americans — totalling some $5bn annually since the 1991 Gulf war — Israel’s military operations inside the West Bank and Gaza have eaten deeply into government resources. Extra spending on security alone is reported to be more than $1bn.
The military invasions of the West Bank earlier this year have also required a huge reserve call-up, taking tens of thousands of men out of the workforce for extended periods.
And now with the reoccupation of most of the West Bank cities, Israel risks taking on the costs of the Civil Administration, the military government in the territories that was replaced by the Palestinian Authority after the signing of the Oslo agreements. So far Israeli Prime Minister Ariel Sharon has managed to offload this burden on to international donors and humanitarian organisations.
But, his advisers have warned, if the crisis grows much worse, Israel may have to run services for the Palestinians, footing the estimated $1bn annual costs.
Finally, there is the loss to the economy of thousands of cheap Palestinian workers who laboured in Israeli construction and agriculture until the general closure was imposed. Despite rising unemployment among Israelis, now running at over 10 per cent, many still refuse to carry out dirty or dangerous jobs.
Employers have therefore turned to the Far East and parts of Africa to find workers, adding substantially to hiring costs.
For all these reasons, Major General Uzi Dayan warned the government earlier this month, as he resigned from the National Security Council, that the Israeli economy would be unable to support the military assault against the Palestinians for much longer.
This diagnosis is probably too gloomy. But the economy is in crisis and it is hard to see how it can recover as long as the Intifada continues.
The most pressing problem facing the country is the budget. Sharon is facing rebellions on several fronts over his plans for deep spending cuts on welfare services and for tax increases to raise $2bn. In particular the Labour Party, which is looking for an excuse to leave the unity government so that it can prepare for the forthcoming elections, has been threatening to vote against the budget, only adding to the uncertainty and to investors’ fears.
But Israel’s woes pale next to the catastrophe, both economic and humanitarian, in the Palestinian territories.
The Palestinian economy has never been healthy. Even after the signing of the Oslo accords, Israel continued to limit trading opportunities through its control of borders, it skewed agricultural markets by restricting access to water and by heavily subsidising Israeli farmers, and prevented the development of an indigenous Palestinian industrial base. Some 96 per cent of all Palestinian exports were to Israel.
Most Palestinian men were dependent either on working cheaply in Israeli construction, agriculture and quarries (a source of labour that could be turned on and off by Israel at will through its closures) or on the huge bureaucracy of the Palestinian Authority, which itself was maintained by large handouts from international donors, mainly the Arab states and Europe.
With the Intifada, this economic house of cards has collapsed. The biggest blow has been delivered by the increasingly severe general closure imposed on the territories. As a result, access to some 140,000 potential jobs in Israel has been cut, the Palestinian export and import trade has been stifled, and commercial companies have faced the choice of bankruptcy or relocating out of the territories.
Gaza, which is surrounded with an electronic fence, has been effectively sealed off. In the West Bank Palestinians still try illegally to cross the border looking for work, but Israel is cracking down on Israeli employers, imposing big fines or jail on offenders. With the completion of the wall around the northern West Bank expected within months, even the few remaining Palestinians who beg or hawk goods on curbsides in Israel will be gone.
The damage inflicted by the general closures on the West Bank and Gaza has been made more grievous by internal closures, the network of military and settler checkpoints on roads between Palestinian towns and villages. These, together with the prolonged curfews across much of the West Bank, have made domestic economic activity virtually impossible.
Many farmers, for example, can no longer get to their fields to plant or harvest crops. And even when they can, they can rarely move goods to distribution points in the main cities. Many crops have been left to rot in the fields.
There is also a long-term damage being done to the farming economy through further confiscation of land and destruction of crops. Half a million olive, palm and citrus trees are reported to have been uprooted by the army during the Intifada, 220,000 dunums (55,000 acres) of agricultural land bulldozed, and water wells and irrigation systems destroyed.
Businesses too have been paralysed by the internal closures, unable to transport products around the territories, or to rely on staff reaching work or being able to open the office. The repeated destruction of the West Bank’s physical infrastructure — including roads, electricity pylons, telephone wires — and the prolonged closure of much of the banking system have made trade and financial transactions unpredictable or impossible.
One of heaviest hit industries has been construction, which before the Intifada employed 16 per cent of the workforce in Gaza and 24 per cent in the West Bank, with many labourers working on Israeli settlements. This sector has contracted rapidly, now employing 3.4 per cent of the Gazan workforce and 13.6 per cent in the West Bank.
Although the Palestinians’ pre-Intifada tourism industry was in its infancy, it was contributing 11 per cent of gross domestic product and was expected to be a big potential growth area. Tourism to Palestinian areas has almost completely ended, with losses estimated at nearly $500m according to the Palestinian Economic Council for Development and Reconstruction (PECDAR). Most hotels and tour companies have closed, sacking all their staff.
Although the 150,000 or so Palestinians employed by the Palestinian Authority, many in security-related jobs, and in the local authorities still officially have their jobs, most are on subsistence wages and are no longer receiving regular salaries. The PA has no money to pay its staff and has to rely on donations from the Arab states and grants from Europe before issuing payments. May’s salaries, for instance, were paid in mid-August.
The PA is effectively bankrupt. Its budget deficit has climbed steeply from $19m in September 2000 to $73m last December, with around $430m in accumulated arrears, owed mainly to commercial banks.
The PA is also trying to recoup some $500m owed by Israel, which under the Oslo accords was allowed to collect various tax monies on behalf of the PA, including duties on goods shipped via Israel, VAT on private transactions, and income tax on Palestinians working in Israel. Israel has frozen most of the money, returning only $15m so far. It has threatened to deduct $40m owed to Israeli electricity and telecom companies. The sum held by Israel grows by approximately $30m a month.
The only thing keeping the PA afloat are handouts from the Arab states and Europe, which together have contributed some $900m to the PA’s budget since the start of the Intifada. Donor fatigue is an ever-present danger, however.
The wider financial picture is equally cheerless. According to a recent report by the United Nations Conference of Trade and Development, some $2.4bn has drained out of the economy because of Israeli policies such as the closures and the military destruction of Palestinian infrastructure, now estimated at more than $400m.
Other surveys put current national income loss at $7.6m a day, with accumulated losses since the start of the Intifada at $3.3bn.
Unemployment has also rocketed. A survey this month by the Palestinian Central Bureau of Statistics put joblessness at 45 per cent of the workforce, or 366,000 Palestinians. However, the true figure is likely to be substantially higher. The survey was distorted by the fact that many of the families to be surveyed were not included because the closures and curfews meant they could not be reached.
These are precisely the families most likely to be out of work. Other estimates suggest more than 60 per cent unemployment.
The resulting humanitarian crisis has been well documented by the American government agency US Aid. Its study found that 36.6 per cent of Palestinian families in the West Bank and Gaza did not have enough money to consistently feed their families. Many, particularly in Gaza, were selling their possessions to buy food. Other surveys have shown that two-thirds of Palestinians are living below the official poverty line of $2 a day.
The US Aid report concluded that nearly a quarter of children under the age of five now suffer from chronic or acute malnutrition, and almost a fifth have anaemia. An estimated 1.5 million Palestinians out of a total population of 3.3 million, it said, were receiving direct food aid, more than five times as many as two years ago.
The crisis has so far been managed only through the distribution of money and food by a network of humanitarian groups, including local and foreign Muslim organisations, Christian charities and Western aid agencies. The UN welfare and employment agencies have renewed their distribution of food packages, and lately the International Red Cross has begun distributing food vouchers.
But in the longer term such groups are unlikely to be able to deal with the growing economic disaster inside the Palestinian territories.
Al-Ahram Weekly – 26 September 2002