Economic Roadmap Leading to Nowhere

By Nadia W. Awad

Episode three of the Palestinian National Economic Development Conference took place in Jericho this Sunday October 5, hosted by Palestinian Prime Minister Salam Fayyad. The conference did not receive much local or international coverage, despite the fact that about 400 men and women attended the event, representing ministries, institutions in the public and private sector, businesses and investors. The aim of the conference was to discuss ways to increase partnership between the public and private sectors of the Palestinian economy, as well as to enhance investment in the private sector.

Since the beginning of the second Intifada in 2000, the Palestinian economy has descended into a severe downward cycle. Israel imposed curfews and closures on Palestinian towns and villages, rendering the movement of goods and people very difficult if not impossible. As instability and violence in the West Bank and Gaza increased, private sector growth came to a standstill and subsequently began to shrink, forcing a rapidly growing labor force to look to the public sector for employment. The public sector, i.e. the Palestinian government, began directing funds towards the hiring of employees, as well as increasing government subsidies, which at the time was necessary to prevent an economic catastrophe from occurring. As such, many families came to rely on the Palestinian government for their livelihood. Consequently, there was little money remaining to invest in much needed public infrastructure and development projects. In fact, most such projects ceased. This situation continued unabated, and today there is very little private sector investment, very little investment in infrastructure, negative economic growth rates, high unemployment figures, and a people who are heavily reliant on the government for survival (an average of 5.3 people were dependent on a government employee in 2007). The Palestinian government is now almost completely reliant on donor funding to survive, using those funds to pay salaries and cover daily operating costs.

This most recent conference is another means by which to get private sector investment back on the national agenda, linking it with the strengthening of the public sector. In his opening speech, PM Fayyad promised that the Palestinian Authority would continue to exert all efforts to boost the private sector, including the expansion of the industrial zones in Jenin, Tarqumiya, Jericho and Bethlehem. These efforts are all part of the Palestinian Reform and Development Plan 2008-2010 (PRDP), developed by the Palestinian government and with the support of the World Bank and the British Department for International Development (DFID). Essentially, the PRDP was created to help the Palestinian economy return to pre-2000 conditions. One of its main goals, along with reining in government expenditure, is to re-energize the private sector by creating conditions on the ground that will promote private sector growth. These steps include funneling money back into infrastructure projects, rebuilding regulatory institutions, reforming and simplifying tax laws, providing security in the Territories, and ensuring basic services (such as utilities), to name a few.

Such reform plans, speeches and conferences do serve an important role in Palestinian society. They are necessary to make Palestinians feels that there is some progress being made in at least one area of their lives, if not in the political arena. Otherwise, the feeling of impotence would be completely overpowering. However, nobody is naïve enough to believe that any amount of donor funding, workshops, conferences, and papers will save our economy, or our state. Every penny we invest in our economy and infrastructure can be undone with one single Israeli act of aggression. Citing security reasons, Israel destroyed the airport built in Gaza, government buildings built in the West Bank, the newly tarmacced roads, the electricity and phone lines installed and the police patrol cars purchased. All of these projects, designed to promote security and provide a basic infrastructure, were financed with international donor funds and destroyed with Israeli and American funds. The irony of the situation would be amusing if it were not so depressing. Let us not forget as well the checkpoints, the arrests, the closures, the separation wall, the house demolitions, the land grabs, and the settlements – all of which impede any chance of a full Palestinian economic recovery.

Israel is not the only impediment to that economic recovery. The rift between the Gaza Strip and the West Bank still exists and because of this continued internal conflict, it is very difficult for PM Fayyad’s government to perform any reforms or development in Gaza. National reconciliation talks to be held at the start of November between Hamas and Fatah will be followed closely by the Palestinian and international community. Recent discussions on the formation of a transitional national reconciliation government while Palestinians prepare for presidential and parliamentary elections have been promising. If reconciliation occurs and the situation stabilizes to everybody’s satisfaction after the end of Abbas’s presidential term on January 9, this will be a huge boost to the Palestinian political and economic situations.

Of course, all this talk of reconciliation has yet to happen. In the meantime, Palestinians will continue to do what they can to help the economy, even though there is a limit to what they can achieve. There are also those critics of the PRDP who claim that the World Bank has a tendency to prescribe the same medicine to every country in economic difficulty (no matter how different the circumstances): fiscal discipline and private sector growth. For some, that translates into minimal government spending and involvement in providing social services, and attraction of foreign investment. This may sound like a good plan, but what critics don’t like about it is that it does not take into account individual circumstances and the effects slashing of government budgets will have on the local populations. For example, the Palestinian government has pledged to freeze wage levels as part of the reform plan, but inflation is hovering around 10%, meaning that real wages (nominal wages minus inflation) will decrease by as much.

The industrial zones are another area of skepticism. PM Fayyad has said that these zones will promote trade with regional partners, including Israel. Not much information is available about how they will be run, but according to some, including the Boycott, Divestment and Sanctions National Committee, the industrial zones are just another way of guaranteeing cheap goods for export created by an underpaid Palestinian workforce. Located on the periphery of Palestinian towns, these industrial zones will be funded by local and foreign capital, with Israel essentially controlling who goes in and out. These cheap goods will be exported to Israel, the Gulf States, and the US. There are also claims that the main trade union body in the West Bank and Gaza Strip, the Palestinian General Federation of Trade Unions (PGFTU), has not been given the right to represent workers in the industrial zones.

If no movement is made on the political front, it will be correct to say that PRDP measures will only postpone an eventual collapse of the Palestinian economy. Economic and social development in Palestine is essential, and it is vital that we take steps to improve the current economic and political situation. But, to use a common phrase, it takes two to tango. In short, Israel needs to end the occupation. Reducing the number of checkpoints and easing restrictions, which the Israelis pledged but have yet to do, is only a start. End the occupation, and the political and economic rewards will follow.

(Originally published in MIFTAH – www.miftah.org. Republished in PalestineChronicle.com with permission.)

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