According to Nigel Roberts, World Bank country director for the West Bank and Gaza, closures of Israeli checkpoints and roadblocks that divide the West Bank "are the key factor behind today's crisis in the West Bank. They have fragmented the economic space of Palestinians, raised the cost of doing business and eliminated the predictability needed to conduct business."
In a report released on April 27, the World Bank stated that the economy in the Occupied Palestinian Territories (OPT) of the West Bank and the Gaza Strip will not improve over the next year due to such closures in the West Bank (i.e. the restrictions on movement imposed on goods and people) and the Israeli-imposed blockade on the Gaza Strip, despite efforts by the Palestinian Authority (PA) and international donors to boost the local economy.
The report predicted 3% gross domestic product growth for the upcoming year "that, taking into account population growth, leaves per capita income static if not lower than the previous year".
Israeli labour market
Unemployment in the Occupied Palestinian Territories (OPT) has remained high (23% in the West Bank and 33% in Gaza), mainly due to Palestinians' inability to work in Israel, which was for many years the principal employer for residents of the West Bank and Gaza Strip. Before 2000, the bulk of the Gross National Income in the OPT came from remittances from the 120,000 people who worked in Israel, where they were considered the best source for cheap labour.
Under these circumstances, the priority of the PA was to safeguard the chance of finding remunerative posts across the Israeli border rather than to improve the local opportunities for employment. Relying on the needs of the Israeli labour appeared much easier than facing the task of building a proper domestic industry.
In addition, starting any kind of economic activity in the OPT required the approval of Tel Aviv, in line with a strategy of avoiding the development of investments that could have competed with Israeli interests. The clear objective behind these policies was that of hindering the development of an autonomous productive capacity and of endogenous growth within the OPT.
The strategic change in the Israeli employment policy started in the mid '90s and aimed at replacing Palestinian labour with immigrants and guest workers from Eastern European and the Third World. This left a large amount of unskilled Arab workers without the possibility of being absorbed within the OPT labour market.
When the second Palestinian intifada (uprising) broke out on September 28, 2000, the sudden change of the Israeli policy regarding borders — with the enforcement of strict border, checkpoint and road closures — showed that Israel was moving in the direction of clear separation between its economy and the OPT's.
The West Bank closure system is made up of physical barriers on roads to control and restrict vehicular traffic under the pretext of protecting Israeli citizens from Palestinian attacks. The system causes severe restrictions on the movement of trucks carrying goods and costly back-to-back procedures for the delivery of goods in and out urban areas — not only minimising internal trade, but also decreasing Palestinian capability of trading with the outside world.
Moreover, the closures have made the movement of the Palestinian labour force extremely difficult. It is estimated that the percentage of the OPT workforce employed in Israel and in the Israeli settlements in the OPT dropped from 22.1% in the third quarter of 2000 to 8% at the end of 2006. The declared will of the Israeli government is to totally interrupt the flow of Arab workers in 2008, as recently declared by the Israel's finance minister.
The Palestinian economy began to experience a downward trend of the main indicators with the outbreak of the second intifada and the situation got worse with the boycott by Western governments of the PA for most of 2006 and the first half of 2007 due to the participation of Hamas in the government.
In June 2007, PA President Mahmoud Abbas took over the West Bank and appointed a new prime minister from his Fatah party, removing the elected Hamas PM Ismael Hanyieh. Hamas remained in control of Gaza, which has been placed under the tightest restrictions ever — with Israel imposing a total siege. Gaza's borders with Israel and Egypt remain shut for all a small amount of humanitarian aid and medical purposes, depending on Israeli orders.
The current blockade on Gaza, home to 40% of the OPT's population, has crippled industry and 96% of industrial operations have stopped. All exports are banned. Meanwhile, the West Bank continues experiencing negative growth principally owing to Israeli checkpoints and roadblocks spread throughout the territory.
"Private sector activity remains constrained and hampered by movement and access restrictions and reduced consumption due to lower purchasing power", the WB report stated, noting that improvement in the business sector is required for the aid-dependent PA to wean itself off international donations.
The report is further evidence that the problematic level of stagnation in which the Palestinian economy is sinking is not a structural or technical issue, but rather a political one whose root cause lies in the military occupation and in the lack of Palestinian control over its borders, territory and resources.
That's why no amount of donor aid and Palestinian reforms will lead to economic growth without an end to Israel's occupation.