Delusions of a Palestinian Economic Miracle

• By JeremyWildeman
• 25 June, 2011
• 10 Comments

Palestine is neither Toronto nor Dubai, and Life Has Been Better.

The Separation Wall, courtesy of the Catholic Church in England and Wales

For two years major media outlets have been painting the picture of a flourishing Palestinian economy.  In August 2009, the Wall Street Journal published an opinion piece by Israel’s ambassador to the United States marvelling over a West Bank economy with an annual “growth rate of 7%, declining unemployment, a thriving tourism industry, and a 24% hike in the average daily wage.”  In August 2010 the New York Times touted “increasingly reliable [Palestinian] security forces” with an Israeli military spokesperson explaining that the “area is stable because of both its economic growth and a strong security situation.”  In August 2010 Reuters reported a “Ramallah building boom symbolizes West Bank growth,” a September 2010 Wall Street Journal article referred to “resounding” growth in the West Bank and Gaza” and a March 2011 Jerusalem Post article exclaimed “car sales race ahead as Palestinian economy purrs.”  An April 2011 article in the Globe and Mail credited both the Palestinian Authority government of Mahmoud Abbas and the Israeli government of Benjamin Netanyahu for creating a “quality of life for most people that has never been better.”  Bearing these grand proclamations in mind, one might forgive the Israeli Ministry of Foreign Affairs for boasting about the role of Israeli government policy in facilitating Palestinian economic growth and take this as vindication for the Western aid policies that have fuelled it.

Unfortunately these reports construct the image of a Palestinian economy which is very far from reality.  The crippling truth is one of poverty, personal insecurity and protracted economic decline.  By examining four key statements made in the Globe and Mail article “The Ramallah Miracle: Is Palestine Ready for Independence?” this article will debunk any notion that Palestine’s economy is booming and reveal that it is only experiencing a very limited “aid bubble.”

“How did the Palestinians, a struggling nation under occupation, manage to build a 29-storey luxury office and hotel tower? This one, with façades of Omani and Chinese marble, a three-floor shopping mall and four levels of underground parking, looks as if it could be in Toronto or Dubai, but not in the occupied West Bank.”

“The Palestinian economy (excluding the Gaza Strip, which is ruled by Hamas and largely sealed off by Israel) is doing remarkably well: It grew 8 per cent in 2009 and 9 per cent last year.”

No Palestinian city can be compared to Toronto or Dubai.  Palestine is an impoverished region that has endured a decade of war and decades of direct military occupation.  Its citizens lack personal security, entire communities are at constant risk of violent invasions, freedom of movement is severely limited and the region suffers from advanced economic decline.  Toronto and Dubai enjoy strong, sustained economic growth in regions that have enjoyed decades of peace and economic prosperity.  Their citizens can count on high level public services while advanced international infrastructure facilitates the movement of their goods and citizens around the world.

A June 2011 United Nations Relief and Works Agency (UNRWA) report directly contradicts media reports of economic prosperity.  It states that “contrary to media reports of a flourishing West Bank economy, evidence from the second half of 2010 shows deteriorating labour market conditions, with falling employment growth, accelerating unemployment and lower real wages.”  Already the Palestinian economy showed serious signs of weakness.  By purposefully ignoring a devastated Gaza strip, the Palestinian economy appears superficially to have done well in the past two years growing by 8% in 2009 and by 9% in 2010.  However, this is a small consolation when compared to the massive loss in per capita GDP that took place between 2000 and 2008, when it dropped by an incredible 34%.  To put that into perspective, a drop of 4.8% in one year in 2009 was considered a major recession and record drop for the United Kingdom.  Even the World Bank remains pessimistic, pointing out that any economic gains are driven by unsustainable, large inflows of foreign assistance.

Business Street in Nablus City Centre, Palestine

Dubai's Coastline, courtesy of Progressivetimes

Toronto Skyline, courtesy of the Toronto Star

The reality of everyday life in Palestine is one of poverty.  According to the BBC the number of people living below the poverty line in the West Bank and Gaza Strip is 46% while the Canadian International Development Agency puts this figure at an astonishing 58%, with about half of them living in extreme poverty.  Approximately 50% percent of Palestinians experience or risk experiencing food insecurity.  Food insecurity is particularly severe in Gaza, where the majority of the population relies on humanitarian assistance just to survive.  The rate of chronic malnutrition in children under the age of five has increased, reaching almost 10%, and the mortality figures for children under the age of one and under the age of five have each increased by about 30%.  Anaemia, a reduction in the number of red blood cells due to a lack of iron in the diet, is common, with 55% of children under the age of three affected by the condition.  Among pregnant women, the rate ranges from 36% to 46% for nursing mothers.

“The quality of life for most people in the West Bank has never been better – not under the Ottomans (before 1917), not under the British (1917 to 1948), and not even under the Jordanians (1948 to 1967).”

“While the West has been fixated by the popular uprisings in the rest of the Arab world over the past few months, Mr. Fayyad and PA President Mahmoud Abbas have continued the business of building their state, cracking down on corruption, seeding infrastructure projects and hiring teachers and doctors.  Their efforts over the past two years (along with unheralded support from the government of Israeli Prime Minister Benjamin Netanyahu) are paying off.”

Life has been better for Palestinians, much better. Real wages continued to deteriorate in the second half of 2010 under the volume and persistence of unemployment and consumer price inflation.  In Gaza, the unemployment rate was among the world’s highest, at 45.2% in late 2010.  The West Bank economy is still below its 1967 and 1999 levels. Gaza’s economy is in a catastrophic state as a result of Israel’s embargo and the absence of Palestinian legitimacy. Rather than reflecting on a recovery of the Gaza economy, a reported growth 1% of GDP in 2009 resulted from the development of coping mechanisms that have allowed some economic activity to resume on a very limited scale.

The Main Business Street for Old Askar Refugee Camp

Faqua village, near to Jenin

Ali Abunimah claims that the Palestinian Authority’s much-touted institution-building and economic development efforts are nothing more than a mirage and that the economy of the Palestinian Authority and West Bank remain completely dependent on foreign aid.”  If there is any growth, senior economist Raja Khalidi notes that:

“We’re certainly witnessing an economic bubble, and not for the first time (we saw this before in the 1980s and the 1990s, but they eventually burst or were crushed by Israeli tanks!).  Growth of 9 percent was largely fuelled by donors, aid and private investment recovery in the West Bank, as well as the booming illicit tunnel economy in Gaza.  It’s no secret that growth is mainly taking place in Area A and B, and not in Area C, while Gaza and Jerusalem anyway are effectively excluded from the growth map.  That’s about half of the Palestinian people under occupation actually enjoying the current economic recovery, or maybe 20% of the Palestinian people.”

Life under occupation is hard.  The West Bank is dominated by an eight metre-high, 700 km separation wall that has enclosed Palestinians into isolated ghettos similar to the Gaza Strip – itself enclosed.  Occupation requires the use of force to rule another population against their will.  Nir Rosen notes that occupation entails “a systematic and constant imposition of violence on an entire country.  It’s 24 hours of arresting, beating, killing, humiliating and terrorising, and unless you have experienced it, it’s impossible to describe except by trying to list them until the reader gets numb.”  Senior political analyst and former International Relations professor Marwan Bishara describes the occupation as one that has “oppressed, tortured, exploited and robbed the Palestinians of their land, water and most importantly, their freedom.  There have been more political prisoners in Israeli jails than any of its [Arab] neighbours.”

It is impossible for a normal economy to function under such insecurity, the arbitrary application of law and draconian restrictions on movement.  Achieving an independent, sustainable economy requires not only continuing a program of reform but also removing Israeli restrictions.   Palestine’s economy is not booming and it is in shambles.  As Raja Khalidi points out, “this persists owing to occupation, separation from neighbouring states, internal fragmentation, war, institutional attrition, and the uncertainty of implementation of the two-state solution envisioned in UN Security Council resolution 1397 and the road map.  In the absence of deliberate and comprehensive policy attention to these pending challenges, the Palestinian economy is effectively being transformed into one of subsistence.”

The Globe and Mail article “The Ramallah Miracle: Is Palestine Ready for Independence?” is clearly wrong in its claim that the Palestinian economy is booming and that life has never before been better.  Life under occupation is neither palatable nor sustainable.  Any argument that the current arrangement is benefitting the Palestinians has no basis on reality and only serves to distract the world from implementing difficult solutions to the real problems.

Update:  Here is a February 14th, 2012, article by Alaa Tartir, Sam Bahour and Samer Abdelnour, “Defeating Dependency, Creating a Resistance Economy,” which explores the true economic challenges and meltdown, which both international donors and the Palestinian Authority are either at best failing to curtail or at the worst actually contributing to.

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