Restoring Gaza to its pre-war state may take 70 years

Gaza has long been a target of Israeli bombardment and oppression. For the past two decades, 80% of its population has become dependent on international aid as a result of Israel's suffocating siege.

Before 2023, the most brutal Israeli aggression was in 2014. But now that pales in comparison with what has happened since 7 October.

Over 38,000 people have been killed and 71,000 wounded, most of them being women and children, according to the Euro-Med Human Rights Monitor. This is more than four times the number of Palestinians killed in all of Israel's military assaults on Gaza since 2007.

When compared to other conflicts, Gaza's statistics are chilling. In only six months, Gaza's civilian death toll has skyrocketed past the civilian death toll in the Ukraine war, which entered its third year in February.

Every death in Gaza robs its economy of one of its most vital assets: manpower. Discussing any kind of economic future feels impossible with so many of the workers that would have shaped it left dead—a toll that touches every sector.

It runs from the healthcare staff trying to treat the sick and wounded to vendors trying to keep people fed to the journalists reporting on the horrors to construction workers who are needed to rebuild Gaza.

It is an aggression deliberately aimed at destroying all the things necessary to sustain life for Gaza's 2.3 million residents.

When—or even if—people are allowed to return to their homes, the road to recovery will be long and fraught with political and economic challenges.

One example is Israel's systematic campaign to dismantle the United Nations Relief and Works Agency for Palestine Refugees, UNRWA.

In the wake of Hamas's Al-Aqsa Flood operation, much of Gaza and its economy was swept away by Israel's brutal assault. It has lost key infrastructure, residential buildings, farmlands, capital, commercial centres, factories, schools and universities, hospitals, the electricity grid, internet servers, fresh water and sewage infrastructure.

The lack of sanitation has seriously threatened public health and led to the spread of disease.

Bigger than Hiroshima and Nagasaki

Euro-Med Human Rights Monitor estimates that in early November – less than a month after the start of the wide-scale war on Gaza –the amount of explosives dropped was at least the equivalent of the effect of two atomic bombs and perhaps even stronger.

Israel admitted dropping more than 25,000 tons of explosives on Gaza, with a record number of bombs used.

This works out to 10 kilogrammes of explosives per person, which is more than the mass of the atomic bombs the US dropped on Hiroshima and Nagasaki in Japan at the end of World War II, estimated at around 15,000 tonnes of explosives. And whereas the size of Hiroshima was 900 square kilometres, Gaza is only 360 square kilometres.

A bad situation now exponentially worse

And life there was already difficult.

Since Israel blockaded Gaza in 2007, living standards have been in perpetual freefall. According to UNCTAD, Gaza's Gross Domestic Product (GDP) per capita was equivalent to only 28% of that in the West Bank in 2022, at $1,257. In 2023, it fell to $930 due to the war.

Gaza's already low share of the Palestinian GDP also fell further in 2023, reaching 14%, at about $2bn, by the end of the year. Before the blockade, the share was 17% in 2022 and 31% in 2006.

According to the Palestinian Central Bureau of Statistics, Gaza has lost at least a quarter of its GDP in 2023. And this will be a long-term disaster, with the lag between any end to the war and the resumption of anything like normal economic activity.

The scale of the displacement defies the language of numbers, even at the dawn of the age of Artificial Intelligence. Almost 1.9 million people are internally displaced within their own country. Some found shelter within UNRWA facilities, such as schools, hospitals, wedding halls, and community centres. Others had to camp out in the open.

Israel has used hunger as a weapon of war, preventing all forms of aid from getting to people. Thoughts of economic recovery seem even more remote when all that is visible is hunger, destruction, and inevitable death.

At least 576,000 people are thought to be starving, a quarter of the population. There are worries that it could get even worse. UN Secretary-General António Guterres expressed concern about the potential total collapse of the remaining humanitarian support system in Gaza.

This would have devastating consequences for the Strip and huge security implications for the entire region and the wider world.

Already, Gaza has been reduced to a subsistence economy, and it has little capability to meet the basic needs of its people, who face hunger, thirst and disease amid a lack of medicine as they grapple with psychological trauma. The wounded and the sick are being left to their fate, along with newborn babies.

Among the economic and development challenges facing Gaza is its demographic structure, with half of its population being children who, above all, will need mental health support for the psychological trauma they have endured.

For his part, Commissioner-General Philippe Lazzarini of UNRWA said, "This war is a war on children. It is a war on their childhood and their future", he said.

It's hard to argue with nearly 15,000 children killed by Israel, which is more than the number of children killed during four years of conflict worldwide.

Throughout it all, there is still no clear prospect of how the war may end. Nonetheless, the experts charged with looking to the future have not found much ground for optimism.

UNCTAD's best-case scenario can't see Gaza's per-capita GDP returning to its 2022 level before 2028. It would also need an average annual GDP growth rate of 10% and annual population growth of 2.8%.

And that comes with some big assumptions, not least the end of the Israeli military operation and an immediate start of reconstruction.

A more realistic forecast, of an annual growth rate of 0.4%, would mean that Gaza's GDP would not return to pre-war levels until 2092, almost 70 years into the future.

A Marshall Plan for Gaza

One thing is clear: Gaza's recovery will be impossible without significant and urgent efforts—and funding to match—from the international community.

It will need to be ambitious, like the Marshall Plan, the project for European reconstruction after World War II. UNCTAD estimates that tens of billions of dollars will be needed over the next few years to restore a semblance of normal social and economic life.

For context, the 2014 war resulted in economic losses of just $460mn, according to the World Bank. In 2008, losses amounted to $2.5bn, according to UNCTAD, which estimated the value of assets damaged in the 2012 and 2014 wars at about $2.7bn. The Palestinian Authority estimated the cost of reconstruction at about $3.9bn.

The International Monetary Fund's Managing Director Kristalina Georgieva has repeatedly warned that "the Palestinian economy's dire outlook is worsening as the conflict persists."

A permanent ceasefire remains both an absolute priority and a basic demand. Without it, poverty will likely worsen, and there will be no opportunities for development. Education and basic services will remain lacking, and conditions will only worsen if military operations continue.

Neighbourhood impact

Meanwhile, the impact of Israel's war has not been confined to Gaza and has had wide reverberations not only across the region but the world.

Even Palestine's neighbours—including Lebanon, Jordan, and Egypt—haven't been spared from the economic consequences of the ongoing conflict—especially the longer the war continues.

Tourism is the most immediate casualty. These countries lost an estimated $18bn from their collective after six months of war, meaning an aggregate decline of around 4%.

Those estimates from the Economic and Social Commission for Western Asia (ESCWA) and the United Nations Development Programme (UNDP) were made at the onset of the conflict.

They do not include direct and indirect losses caused by the bombing of southern Lebanon or the impact of the turbulence affecting maritime transport through the Red Sea.

Preliminary reports suggest that around 9,000 homes have been destroyed along Lebanon's southern border.

About 100,000 Lebanese have been displaced from southern villages, 313 have been killed, and about 1,000 wounded. Additionally, 75 schools have been permanently closed.

However, perhaps the greatest casualty of the war was the damage it caused to Lebanon's agriculture sector. Around 800 hectares have been completely damaged, 340,000 cattle have been lost, and about 75% of farmers have lost their ultimate source of income.

Lebanon's Prime Minister Najib Mikati has officially declared the southern farmlands a "disaster zone."

Read more: Israel's scorched earth policy hits southern Lebanon hard

Global commerce impact

Meanwhile, Houthi attacks on commercial shipping in the Red Sea have had a direct impact on the world economy, especially via traffic through the Suez Canal. Its revenue is down significantly and is still falling.

According to IMF data, shipping costs have increased, and trade movement in the Bab-el-Mandeb Strait and the Suez Canal has decreased by about 50% this year.

Wider economic growth in the Middle East and North Africa region is now expected to fall short of previous IMF expectations, with GDP expansion limited to 2.9% in 2024. That is a cut of half a percentage point from projections made in October.

West Bank impact

In the West Bank, hopes that 2024 would be a year of economic recovery after the COVID-19 pandemic caused a 12% decline in the Palestinian economy have been dashed. World Bank expectations for 3% growth this year have been replaced with a forecast of a contraction of 6%. And even that assumes that the intensity of the war will ease.

The West Bank economy has been hit since day 1 of the war. Israel stopped issuing entry permits to Palestinian workers— who number 160,000 and comprise 20% of the workforce, and 20,000 from Gaza—most of whom are daily wage labourers employed in Israeli markets.

The remittances from these workers contribute $3bn annually to the Palestinian economy, which makes up 15% of the national income. If job opportunities are not created for these workers in the short term, unemployment in the West Bank could skyrocket to 30%. In Gaza, this has already reached a whopping 80%.

In addition, the drop in visitor numbers and tourism to the West Bank cost it $1.5bn in revenue. Agriculture—which, along with tourism, constitutes around 40% of the West Bank's GDP – has also been significantly affected, with farmers unable to harvest their crops during the olive and citrus seasons.

Israel's finance minister, the extreme right-winger Bezalel Smotrich, has threatened to freeze the monthly transfer of tax revenues to the Palestinian Authority. If that occurs, it would completely paralyse the Palestinian economy.

These revenues are the lifeline of the general budget and the main source of funding for the salaries of about 150,000 employees and the PA's operational expenses, which amount to about $300mn monthly.

Read more: Tensions mount as economic crisis grips West Bank

Israel impact

While the consequences of war for Israel—which has major military capabilities, supported by allies including the United States and a GDP many times greater than Palestine's besieged mini-economy—pale in comparison to the devastating effects for Palestinians, it has hurt it greatly.

The effects could have far-reaching and longstanding consequences for Israel's future, which include a decline in local agricultural and industrial production because those workers have been mobilised to function as reserve soldiers. The barring of Palestinian workers has also hurt Israel's economy.

In addition, its much-vaunted technology sector has been significantly affected, with several companies deciding to relocate their operations abroad.

In a landmark moment that reverberated around world markets, Israel's sovereign credit rating was downgraded by Moody's.

With intervention from the Israeli central bank, the shekel is currently priced at 3.7 to the dollar, which is strong. The shekel's resilience may be partially attributed to Israel's current account surplus of $5.8bn in the third quarter of 2023 and the ability of the country's financial markets to attract capital.

Read more: Israel can recover economic losses but not investor confidence

Nonetheless, Israel's reputation among global investors has been shaken. As long as the war in Gaza continues—bringing with it the lingering threat of full-scale conflict spreading to a northern front with Hezbollah across the Lebanon border—so does a serious element of uncertainty for the country. And there is all the turmoil involved in internal Israeli politics.

That means there could soon be a very different market reality for Israel's assets. Investors could move capital to countries with more internal stability and geopolitical certainty.

According to estimates, if the war continues only in Gaza and does not last more than a year, the Israeli economy may face a loss of up to 10% of GDP, totalling $50bn, by the end of 2024.