Intifadat Al Aksa: Counting the economic costs

Published October 24th, 2000 - 02:00 GMT

Intifadat Al-Aksa, the popular uprising in the West Bank and Gaza, may well be a prelude to a unilateral declaration of independence by the Palestinian President Yasser Arafat. If that is the case, the citizens of the fledgling state may discover them in an even more dire economic state than they were prior to Ariel Sharon's fateful visit to the Al-Aksa compound on September 28, the event that sparked the current round of violent unrest.  


The immediate cost of the uprising can be traced to the military closure of the territories by the Israeli army. On the West Bank, this effectively means a halt to the movement of people and goods between the various Palestinian towns and villages, and also between the West Bank and Gaza.  


It also means a halt to the movement of Palestinian residents and goods across the land borders into Jordan and Egypt, nor via Gaza airport or Ben-Gurion Airport in Israel. Furthermore, because the drivers of Israeli tankers were nervous about venturing into the Palestinian areas, the supply of gasoline in the territories was restricted.  


One of the effects of the Sharm e-Sheikh summit last Monday was the lifting of the internal shutdown of the West Bank, allowing movement between the various population centers in the region. However, the safe passages between the West Bank and Gaza remained closed and Palestinian workers were still barred from getting to work in Israel.  


In the short term, the inability of Palestinian workers to get to their jobs across the Green Line provided the most telling economic blow. Before the start of the uprising, up to 100,000 Palestinians traveled to work in Israel on a regular basis, although only 44,000 of them carried official papers. This represented about 20 percent of the employed Palestinian workforce.  


But the actual net worth of the Palestinians working in Israel far exceeded their numerical strength. According to figures released by the Palestinian Authority, while the average wage per worker in Israel equaled 108 shekels at the beginning of 2000, the equivalent average wage per worker on the West Bank was 67 shekels and in Gaza the wage stood at 53 shekels. 


In an interview with a local Palestinian daily, Al-Hayat Al-Jadida, Dr. Atef Allawneh, the Palestinian deputy minister of finance outlined the economic straits in which his people found themselves. With about 11 millions shekels being lost daily in wages from Israel, close to 300 million shekels had been denied to the Palestinian economy in the first three weeks of the uprising, he said.  


To that, he noted, must be added lost tax revenues to the Palestinian Authority itself, mainly from a drying up of import and export tariffs as a result of the border closures, and a dramatic rise in health care costs because the high number of Palestinian casualties.  


The struggling private sector, he continued, was suffering from lost revenues because of a fall in agricultural exports and a complete halt to tourism, income lost by Palestinian fishermen as a result of port blockages by the Israeli navy, the higher cost of raw materials to Palestinian industry, and the economic effects of the almost three-week paralysis of the Palestinian transportation sector, which under normal circumstances contributes about 15 percent of the GDP. 


Before the recent upsurge in violence in the Palestinian territories, the region's economy was looking better than it had in years. In June, an economic progress report prepared by the Palestinian Authority in conjunction with the International Monetary Fund revealed that the Palestinian economy continued to enjoy robust growth in 1999, making it the third consecutive year of rising real per capita income since the recession in 1995 and 1996.  


Compared to the previous year, the gross domestic product (GDP) was estimated to have increased by around 6 percent in 1999 in real terms, with growth particularly strong in the construction and tourism sectors. Gross national income, which was helped by increasing labor income, was estimated to have risen by over 7 percent in real terms.  


According to the PA-IMF report, Palestinian economic growth before Intifadat Al-Aksa was evidenced by soaring tax collection and rapid growth in bank credit and deposits. In 1999, tax revenue increased by 25 percent, and the Palestine Monetary Authority (PMA) reports credit to the private sector growing by 25 percent and bank deposits by 18 percent, all in terms of Israeli shekels.  


Still, despite the strong economic recovery in 1997 through 1999, real gross national income per capita in 1999 was still around 10 percent below the level in 1993. This lack of economic progress was, no doubt, one of the factors behind the simmering cauldron, which boiled over with such fury following Sharon visits to Al-Aksa compound on September 28. 


1nflation has been low, with the consumer price index rising by only 3.3 percent in the twelve-month period through March 2000, compared with 8.3 percent a year earlier. 


At the end of the first quarter of 2000, the Palestinian Central Bureau of Statistics (PCBS) reported a marked decline in the unemployment rate, to 10.9 percent. This compared with 13.9 percent at the same period in time in 1999. However, although unemployment is at its lowest level since 1993 in absolute terms as well as in percent of the labor force, it is nonetheless around twice the level of 1993. Indeed, only about 19 percent of the population actually work.  


While the decline in unemployment took place mainly on account a rapid expansion of employment by the various branches of the Palestinian Authority and a recovery in the number of Palestinians working in Israel, the past two years have also seen significant job growth in the Palestinian private sector.  


Exports and imports of goods and services grew strongly in 1999, reflecting a large increase in tourism earnings and higher imports fueled by the expanding economy and rising labor income. The Palestinian Ministry of Planning and International Cooperation reported that total donor contributions for the development plan stood at $416 million in 1999—or 10 percent of GDP—which was modestly higher than in 1998 but still well below the amounts received in 1994-97. Such contributions were mainly earmarked for technical assistance, but contributions meant for infrastructure investment declined. Furthermore, it appeared that foreign financed public investment spending on the ground declined even more sharply. 


With improved supervision by the Palestine Monetary Authority (PMA) the banking system expanded in 1999, with the number of banks increased to 23 with a total of 114 branches. Private sector deposits in the banking system increased by 18 percent in dollar terms in 1999, reaching US$2.6 billion dollars—or 70 percent of GDP at the end of 1999. 


Would Intifadat Al-Aksa have as significant an influence on the Israeli economy? According to Avi Ben-Bassat, the director general of the Israeli Ministry of Finance, the effects will be minimal. Speaking at a business forum a day after the Sharm e-Sheikh summit, he said that if a the rioting is brought under control, as called for by the agreement in Egypt, Israel will emerge relatively unscathed. "When comparing the economic effects of these disturbances to past events, such as the Gulf War and 1996-97 bombings, you find that today's economy is much stronger than it was back then. The budget deficit is very low, external debt is very low, inflation is very low," he said.  


A week earlier, the Moody's and Standard and Poor's credit rating companies both stated that they have no intention of lowering Israel's credit rating as a result of recent events.  


Israel important high-tech sector is relatively insulated from the events, inasmuch as it is affected less by domestic events and more by what's happening in the international arena," Ben-Bassat said. "The events on Nasdaq are much more important to our hi-tech industry than the riots in the territories," he stated. 


But, despite Ben-Bassat's bravado, there are undoubtedly are certain sector that are being directly affected by the violence. One of these is tourism, which accounts for 2-3 percent of Israel's GDP. Another is trade with the territories, which relies on the movement of goods and labor. And then there is the construction industry, which is dependent on both skilled and unskilled Palestinian labor. 


And, if the violence continues and remains a fixture on the front pages of the international press, the Israeli economy, which last year was considered as one of the world's 10 most attractive destinations for venture capital, could see its the investment community getting cold feet. — (Albawaba-MEBG)

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