The Majalla: How would you characterize the scope and depth of economic recovery in Palestine?
There has been a revival in the West Bank though not much of one in Gaza. In fact, the economy may have contracted in Gaza due to the closure of access points. The West Bank, meanwhile, is on track to see anywhere between 5 to 7 percent gross domestic product growth, which is consistent with projections by the IMF and the Palestinian Authority itself. This growth is coming from a low base, however, and it is not as high as we saw in other post-conflict areas like the Balkans, where growth soared to double-digits after the fighting there. But we do see a resurgence, not only in real growth but in per-capita GDP, which is important to an economy with a population growth rate of 2.7 percent.
The Majalla: What is driving this growth?
We attribute it primarily to donor assistance. In 2008 the PA received some $1.8 billion in budget support alone. There was $1 billion in funds, an enormous amount of money, flowing in during 2007 alone. If you have a $6.5 billion economy and you pump $1.8 billion into it, you’ll obviously see an expanding economy. The government used this money to not only pay salaries but also back salaries. Plus it paid arrears to the private sector and cut taxes. All in all, the PA reports its fiscal stimulus was equal to ten percent of the GDP.
The Majalla: And foreign investment? Is there growing interest in doing business in the West Bank?
There has been a revival of investor confidence after two years of relative peace in the West Bank. There’s been some small-scale private investment and a lot of new housing, which makes sense now that salaries are being paid. However, we have yet to see the actual launch of major projects. A bellwether is the second Palestinian cell phone network, Wataniya. The Israelis have agreed to sign over the necessary bandwidth frequency but Wataniya says it is less than the 4.8 MHz it needs to provide adequate service. Wataniya is threatening to demand the return of its license fee, [equal to about $354 million], and should the project not go through it would be a severe blow to the PA’s fiscal position and serious blow to confidence. Wataniya estimates it could draw some $650 million into the West Bank and create 2,500 jobs during its first two years of operation. Tony Blair has pushed for this project to happen as well as a lot of other interested parties.
Other projects are stalled or delayed, largely because of political factors. A housing project in Riwabi has experienced delays and there is an industrial park in the north that appears to be delayed. When it comes to big projects, we don’t see anything major happening.
The Majalla: Israel has also dismantled roadblocks and checkpoints in the West Bank, correct?
The Israelis are no longer manning a lot of checkpoints and barriers to mobility. These easing steps have been welcome and helpful, though they could man them again if the environment changes. As of now it’s much easier to move around the West Bank. But that pales [as a factor in the recovery] when you compare it to this huge fiscal stimulus package.
The Majalla: What more work needs to be done?
For the economy to grow on a sustained basis, the Palestinians need to be able to trade between West Bank and Gaza and, more importantly, to have access to external markets. In our opinion there is significant room for relaxation on movement of Palestinian goods leaving the West Bank for Israel and other markets in neighboring countries. The Israelis require “back to back” transshipments between the two regions, similar to the Karni crossing at Gaza, where cargo is unloaded before departure, inspected by the Israelis, and then reloaded before it continues. The Israelis say they are working to make this process function more efficiently, but it is not like it was in the past, when any truck with yellow plates could simply move freely between the West Bank and Israel.
The Majalla: Are throughput rates rising or falling?
You’d have to ask the Israelis and Palestinians. We’ve done some monitoring but we don’t have enough data to establish trends. We have seen a considerable rise in imports though, which would make sense given the increased demand.
The Majalla: Is most of that imported cargo from Israel?
Over 80 percent.
The Majalla: What is the economic situation like in Gaza?
We have an office but to gather statistics you need a system. The Palestinian Authority has difficulty operating in Gaza. There are figures for what the Israelis allow to come in via Karni – mostly primary goods like cooking oil and foodstuffs, but everything else comes through the tunnels [that link Gaza to Egypt] and no one knows how many tunnels exist. You can’t survey the tunnel guys. We hear there are 900 to 1,000 of them, but that’s from press reports.
The Majalla: What would happen if those tunnels were shut down, as some in Israel and the US have been calling for? Would there be a humanitarian crisis?
It would represent a serious blow to the Palestinian economy. The tunnels are extremely important.
The Majalla: So there has been no progress in Gaza but encouraging signs in the West Bank. How can the West Bank Palestinians build on their progress?
There can be no sustained growth unless Palestinian products have access to external markets and internal resources, such as land, water, and things like adequate frequency for cell phone grids. Remember, 60 percent of Palestinian lands remain restricted to Palestinian development. Some of these restrictions were negotiated under the Oslo Accords but a lot has happened since then in the form of barriers to mobility and settlement activity.
Interview conducted by Stephen Glain
