Page last updated at 00:23 GMT, Friday, 9 January 2009

Gaza economy faces tough struggle

By James Melik
Business reporter, BBC World Service

street in Gaza City
The UN says Gaza will be reliant on foreign aid for years

The citizens of Gaza have long been victims of the Israeli-Palestinian conflict, with its years of underinvestment, political turmoil and violence.

The immediate image which springs to mind is one of suffering and bloodshed, but part of Gaza's story is about a dismantled economy which is unable to support its own population.

There is widespread unemployment and the economy has not expanded beyond agriculture, small-scale industry, or crossing the border to work in Israel.

The industrial sector in the Gaza Strip has been badly affected, because factories depend on importing raw materials and exporting some of what they produce - all of which has been disrupted over recent years.

The economy relies on exporting to Israel, which then re-exports those goods to other countries.

Trade obstacles

Trade with Israel and Jordan accounts for 98% of all Palestinian exports, but the private sector will not prosper as long as Israeli checkpoints and cumbersome cargo crossings remain in place, the World Bank said in a report published in December 2008.

Israel has been slow in easing its tight restrictions on Palestinian movement, citing security concerns, but the World Bank said Israel could make improvements, even within this closure regime.

Tunnelling is the only type of business which has proved lucrative
Sami Abdel Shafi

It warns that the Palestinian economy, heavily reliant on trade, will not recover unless the restrictions are eased significantly.

Meanwhile, the United Nations has its own big reconstruction projects - a new sewerage system for Gaza and 1,200 new dwellings for homeless people.

However, many of the UN's projects stand idle, because materials are very slow coming across the border with Israel.

Mixed blessing

After a successful career in the United States, Sami Abdel Shafi returned to Gaza in 2004 to set up a management consultancy. One of his goals was to improve Gaza's image.

Gaza Map

"I was hoping to be able to help contribute to the development of the Gaza Strip," he told BBC World Service's Business Daily.

"We are a global economy and Gaza has a great deal of potential, but unfortunately, consecutive complications are causing many people to lose their skills and their competitive edge," he laments.

He says the only retail establishments operating during the current conflict are a few bakeries, and concedes that the only profitable business in Gaza has been the tunnels under the border with Egypt.

"According to reports, that is the only type of business which has proved to be lucrative," he says.

"Although the tunnels were first used for smuggling arms, ordinary people - the unemployed, uneducated and the impoverished - thought their only chance was to be engaged in the business of tunnels," he explains.

Nothing can go forward without the freedom of movement
Sami Abdel Shafi

Mr Shafi pointed out that bright young men, who could not get the education they wanted and who were prevented from leaving Gaza, turned to tunnels as a way of supporting their families financially.

Many of the consumer goods found in the markets, such as toys, soft drinks and chocolate, have flooded into Gaza through the tunnels.

"It is very detrimental to the business environment, because it encourages the black market and even though it is a mixed blessing, people become accustomed to an unnatural way of exchange.

"It hurts the chances of people developing a proper economy that is run according to internationally recognised standards," he says.

'Resilience remains'

But will a ceasefire make any difference to the state of the economy in Gaza?

Gaza Israel crossing point
The World Bank says border crossings have to be eased to help trade

According to Mr Shafi, it will only benefit the saving of human lives.

"What should happen after that is a serious political effort to resolve the root causes of what is going on - which is the siege of Gaza," he says.

"That should pave the way for the opening of the crossing points into the Gaza Strip and once that happens, there could be some development in the economy."

With a population of 1.5 million people - 57% of whom live below the UN poverty threshold of $2 a day - the UN says it seems inevitable that Gaza will depend on foreign aid for many years to come.

Mr Shafi still feels optimistic about the future, however. "People in the Gaza Strip are very highly motivated and very resilient," he says.

"They are able to pick up the pieces and go forward - but nothing can go forward without the freedom of movement."

The interview with Sami Abdel Shafi can be heard on the Business Daily podcast dated 07 Jan 09

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