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Economic Building Blocks in Palestine

Author: Lee Hudson Teslik
September 6, 2007

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Tony Blair, in an interview about his new role as special envoy for the Middle East peace process, called himself a “wild-eyed optimist.” But Blair’s words at September 4 meetings with Israel’s Prime Minister Ehud Olmert betrayed a less heady perspective. Representing the diplomatic Quartet—the European Union, United Nations, United States, and Russia—the former British prime minister called for “practical steps” toward reconciliation, pointing specifically to the need to develop the fledgling economies (JPost) of the Palestinian territories. He and Olmert examined efforts to bring direct investment to the West Bank and stave off economic collapse in the Gaza Strip, all while preventing incoming funds from aiding Hamas.

The push comes at an urgent moment. Gaza’s already-faltering economy fell into a tailspin in June 2007 as the international community levied harsh sanctions following the breakdown of the Palestinian Authority’s unity government and Hamas’ seizure of power in the Gaza Strip. Some fear Gaza may collapse completely. United Nations officials recently issued a stiff warning (IHT) that the territory risks becoming totally dependent on foreign aid unless Israel and other countries loosen restrictions on incoming supplies. The BBC notes sweeping factory closures in Gaza since Israel clamped down on border crossings: All six hundred of Gaza’s garment factories and almost 90 percent of its construction industry factories have shut down, unable to import raw materials. This 2006 Backgrounder looks at the breakdown of international aid going to Gaza and the West Bank, and the impact of aid retractions on the Palestinian Authority budget.

The West Bank has escaped the worst aspects of Gaza’s meltdown. The Palestinian Central Bureau of Statistics (PCBS) in 2006 recorded West Bank unemployment at 18.6 percent, as opposed to 34.8 percent in Gaza (PDF)—though some estimates now put rates in both territories at higher levels. The Financial Times notes that the West Bank’s economy remains distressed, in part because ongoing violence scares away multinational business operations. Yet the disparity with Gaza remains profound, so much so that the West Bank’s favored position may threaten the political future of Palestinian Authority President Mahmoud Abbas. A recent Middle East Times op-ed argues that Abbas is “walking on thin ice” by “cooperating in an economic boycott of a portion of his own people, albeit with the best of intentions.”

What, then, are Blair’s options in terms of “practical steps” forward? The Times of London notes that despite his charge to build up economic institutions in the Palestinian territories, Blair has remained “deliberately vague” about his plans. The article points out the tight spot Blair is in, given that his mandate currently forbids direct negotiation with Hamas. In any case, George Mitchell, a former U.S. senator and U.S. special envoy to Northern Ireland, argues Blair’s success at economic development in Palestine may require a more holistic approach: “On paper, you can segregate the economy, land swaps, and Jerusalem, but in real life they all get mixed together.”

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