Economic independence far from sight

Published October 24th, 2000 - 02:00 GMT

While there may indeed exist an independent Palestinian state by year's end, in the opinion of many in the Palestinian business community, for the foreseeable future their economy will remain dependent and too a large degree at the mercy of Israel.  


"Full economic independence is something that we should both strive for and work towards, but in practical terms it is not something that we will achieve within the coming five years," said Azzam Abu-Saud, the general director of the Jerusalem Chamber of Commerce, Industry and Agriculture in a conversation with Albawaba-MEBG.  


As things stand at present, the Palestinian economic existence is inescapably intertwined with that of Israel. Not only are the Israeli markets a major source of employment—and a proportionately even greater source of employment income—but Israel collects for the Palestinian Authority the lion's share of its direct tax revenue, it is an essential source for raw materials, foodstuffs, water and electricity, and it is through Israeli-controlled ports and border crossings that bulk of Palestinian imports and exports pass. 


In Abu-Saud's opinion, the Palestinian's lack of port facilities not only makes the Palestinians dependent on Israel, but provides the Israelis with a tool with which they are able to control the rate of growth of the Palestinian economy. "Let me give you an example," he said. "Our agricultural exports pass through the Allenby and King Hussein border crossings into Jordan, where the Israelis practice security control. There they are able to create obstacles that slow down and sometimes halt the movement of goods, and they frequently do. With perishable goods any delay has significant consequences. There is very little that we can do." 


When it comes to the exporting of agricultural produce to the European markets, the Palestinians usually must use the Israeli seaports of Ashkelon or Haifa, or the Ben Gurion International Airport outside Tel Aviv. In such cases, Abu-Saud suggests, the Israelis' interest in delaying Palestinian exports may not only have a security or political rationale. There may be economic reasons as well.  


"We export strawberries, oranges and flowers, all of which are products for which Israel is fighting for a European market share," Abu-Saud said. "Because we threaten their business, they have a vested interest in seeing that we do not get to the marketplace." 


"The fact of the matter is that until we have our own ports, over which we practice full control, we will always be subservient and, therefore, not fully independent from an economic perspective. Obviously, because ports are not things that can be created overnight, we are talking of a long-term goal," Abu-Saud explained. 


Israel not only practices control over Palestinian agricultural exports and imports, but also frequently over the basic food supply in the Palestinian areas. In certain cases, it is because the Palestinians are not self-sufficient. "Some 80 percent of milk products are sourced in Israel," Abu-Saud said, "simply because we do not have a sufficient number of milk-producing cows. A similar problem is evident with chickens and chicken feed." 


When it comes to wheat supply the problem is more complicated. With Palestinian wheat production negligible, it is required to import their supply from the outside. But the problem does not end there, the Palestinians lack storage facilities, and once again are dependent on the Israelis. "And even then, our production of flour satisfies only between 20 to 25 percent of local demand. So once again we become dependent upon Israel for supply." 


The effects of the Palestinian under-developed infrastructure, when it comes to the supply, production and storage of food, have been exacerbated by the Israelis' security crackdown over recent weeks, during which they enforced an internal closure of the West Bank — essentially blockading its towns and villages. 


"What we discovered was that while certain towns were practically running out of flour, in others there was a surplus. We should have been able to compensate, but this was not possible because we couldn't move goods from one place to another," Abu-Saud said. 


To remedy the basic situation, the Palestinians are in need of a massive injection investments into their infrastructure. To date it has been largely dependent the assistance of donors for development projects, and donations have been declining substantially from year to year. Today, donations are running at less than 30 percent of the amounts previous committed.  


Non-tax revenues fell to $116.11 million in the Palestinian Authority's 2000 budget, 2.5 percent less than in the re-estimated budget for 1999. However, the decline was much smaller than the 13.5 percent fall in 1999 compared to 1998.  


Nonetheless, the share of infrastructure from total donor assistance has increased every year since 1995, indicating the improved ability of the Palestinian Authority to use public revenues for current expenditures and leave donors’ assistance for development projects.  


Still, when it comes to net income, the Palestinians reliance on Israel is also extremely substantial. First, capital inflows from foreign sources account for more than 20 percent of GDP. Some of that money is supplied by expatriate Palestinians, living mainly in the Gulf States and the United States. But by the far the largest share is provided by the approximately 120,000 Palestinians working in Israel. 


According to Abu-Saud, Israel collects about 80 percent of the Palestinian's direct tax revenue, through customs duties, value-added taxes and social security payments, which are transferred to the coffers of the Palestinian Authority on a monthly basis. "Since the start of this most recent uprising, the Israelis have failed to make any such transfers," Abu-Saud said.  


According to Al-Hayat Al-Jadida daily, since the start of Intifadat Al-Aksa on September 28, the Palestinian economy has lost $186 million in revenues, with a large portion of that amount resulting from Palestinians not being able to get to their jobs in Israel. That amount, the newspaper said, was more than the amount that the Palestinian authority had received in donations since the beginning of the year. 


Palestinian economic leaders are hopeful that the just-completed summit of Arab leaders in Cairo will result in an increase in financial assistance to the Palestinian Authority. Economists have called for some of the money to be used to factors of self-reliance in order to achieve desired growth in the Palestinian economy.  


At present, very little is earmarked for infrastructural development. In the Palestinian Authority's 2000 budget, wages and salaries commanded the biggest share of expenditures at 60 percent, compared to 58 percent in 1999.  


Development expenditures in the 2000 budget were set at $445.5 million, but it was estimated that public local revenues would finance only 5.3 percent of the amount. And for it to materialize, the Palestinian treasury's contribution to the finance of the development budget will have to be doubled compared to 1999. With the cost of the current uprising, that now appears unlikely. 


In the opinion of the Abu-Saud, right now the Palestinians should concentrate on efforts toward self-sufficiency that will yield short-term results. "For one, families should be encouraged to return to the practice of producing some of their own fruit and vegetables. This at least would reduce the Israelis' level of control over our food supply," he said. 


Another measure would be to encourage Palestinians to purchase locally made products, rather than their equivalents imported from Israel. Currently, Israel exports about $2 billion worth of products to the Palestinian territories on an annual basis.  


"Here the advantages would be two-fold. Not only would we encourage the development of our own industries, but we would also exert economic pressure on the Israeli companies supplying the alternative products. They in turn may possibly exert pressure on their own government to take a more lenient attitude toward the Palestinians. — (Albawaba-MEBG)

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