Israeli conflict destroys dreams of riches

The Palestinian territories face a humanitarian crisis

By Emma Clark BBC News Online business reporter

Proponents of peace in the Middle East once dreamed of co-operation between the Israeli and Palestinian economies, but recent events have made this less achievable than ever.

For the past 18 months, the majority of Palestinians have been fighting a different kind of battle.

Their struggle has had little to do with suicide bombers or even the wrath of the Israeli army.

Israeli attacks have sparked food shortages

It has been a quiet battle to maintain livelihoods, make ends meet and keep children from going hungry.

"Thousands of Palestinians have lost their jobs in Israel and I know lots of people who haven't been paid in months," Fatin Muhawi, part of a Palestinian negotiating team for refugees, told BBC News Online.

The Palestinian economy is in severe recession, unemployment has tripled and personal incomes are now lower than they were in the 1980s.

Cut-off

The culprit for economic decline has been the restriction on the movement of goods and workers, said Nigel Roberts, director of the World Bank in the West Bank and Gaza.

Limited travel has hurt the economy

Since the revival of the Intifada - or uprising - in September 2000, the Israeli government has intensified its policy of "closure".

This has imposed additional checkpoints and further limited travel between Gaza and the West Bank and across the borders into Israel.

Ms Muhawi's mother teaches at the main Birzeit University, but only sometimes makes it to work.

Even when she does, she only gets paid about once every two months because the university is running low on funds.

Since the start of the Intifada, up to 140,000 Palestinians, out of a population of 2.8 million, have lost their jobs.

Poverty-stricken

As a result, almost 50% of all Palestinians are now living below the poverty line - able to spend less than $2 a day.

I come from a secular family and I don't even believe in God, but sometimes I could see myself exploding in Tel Aviv

Fatin Muhawi
Palestinian refugee worker

Households have only managed to survive by tightening their belts and borrowing money.

"It is a very communal society," said Ms Muhawi, who has lived in the Palestinian territories all her life.

"Families chip in and help each other out. People are also spending their savings."

An increase in international aid from the Arab League and the European Union, totalling $930m last year, has also helped to keep the region afloat.

Israeli woes

Across the closely guarded borders in Israel, the economy is also in the doldrums.

Last year, Israelis experienced their first recession since 1953, following the country's best year ever in 2000.

Tourism has slumped by 50-60%

The dizzying extremes of growth and recession - 6.4% in 2000 and minus 0.6% in 2001 - can be traced to Israel's once-flourishing hi-tech sector and its close economic ties with the United States.

The bursting of the dot.com bubble combined with a subsequent slowdown in global trade hurt Israel immensely.

"It is a totally different economy," explained Caren Gaboutchian, a Middle East economist at ING Barings. "It is driven by global trends."

Damaged goods

Meanwhile, relentless suicide bombings and the events of 11 September have decimated the tourist industry, which, although a small part of the economy, has dropped off by 50-60%.

The drying-up of Palestinian labour has also hurt Israel's construction and agricultural industries.

In total, the Bank of Israel estimates that the Intifada has cost its economy about 3% of GDP.

By sharp contrast, however, the Palestinian economy is expected to lose 50-70% of its GDP, says ING's Mr Gaboutchian.

Nipped in the bud

The biggest irony is that the Palestinians were enjoying an economic recovery in the late 1990s.

After the signing of the Oslo Peace Declaration, the international community funded various projects, including road building, construction of schools and health clinics.

Infrastructure has been destroyed in Ramallah

My father worked in Gaza from September 1995 to May 1996 with the Palestinian Council for Development and Reconstruction.

But even during this period of relative economic revival, he was shocked by the sight of construction materials being hauled by donkey and cart.

Following incursions by the Israeli army last month, the scenes have become much more grim.

When Ms Muhawi wandered through Ramallah during a ceasefire, she found whole streets and schools had been destroyed.

"It will take years to rebuild everything that was constructed during the peace process."

Peace and reconciliation?

The World Bank's Mr Roberts and Terje Roed Larsen, UN Special Coordinator and an architect of the Oslo Declaration, are both gravely concerned by recent developments.

They believe the current conflict "threatens to consign to history the unique opportunity for conciliation which the international donor community has pursued so vigorously since 1993".

Mr Roberts also told BBC News Online that he was concerned about the potential for psychological damage.

There is fertile ground for rage, hatred and political violence - and none of that is conducive to the business of running an economy

Nigel Roberts
World Bank

"Political concerns tend to dominate. Very little thought is given to the severe economic implications and the impact on reconciliation.

"There is fertile ground for rage, hatred and political violence - and none of that is conducive to the business of running an economy."

For her part, Ms Muhawi is terrifyingly eloquent about the impact of recent events.

"People are desperate. You take away their economic prosperity and they have nothing to lose.

"I used to think of myself as a moderate.

"I come from a secular family and I don't even believe in God, but sometimes I could see myself exploding in Tel Aviv, because of what we have witnessed here."

Backers of the Oslo accord once dreamed of two different economies in Israel and the Palestinian territories, peacefully co-existing and benefiting from each other's skills.

Like so many other things in the peace process, these assumptions seem to have been lost amid all the bitterness and bloodshed.