Stifled West Bank economy drains Palestinians' hopes

Market vendors at a stall in Hebron Old City Business is slow in Hebron's Old City market which used to be the main commercial hub of the southern West Bank

Passers-by linger in front of the window displays on a main shopping street in central Hebron but seem reluctant to enter the stores. In the old market, vendors call out their wares but are largely ignored.

The city is the largest in the West Bank and a major commercial and industrial hub, accounting for about one third of the West Bank's GDP. Recently it was also the scene of some of the worst violence during Palestinian economic protests.

Locals blame the discontent on high unemployment, low wages and the rising cost of living as well as the heavy burden of consumer debt.

"Our economy depends 100% on customers and as you can see, now the customers have no money," says Ayman, a tour guide.

As the global recession plays out, the Palestinians are not alone in facing such woes. Yet, as a recent World Bank report highlighted, there are some unique factors that also hurt their economy.

The Palestinian Authority (PA) relies on international aid but has seen a recent shortfall in donor funding, the World Bank says, while the Israeli occupation of the West Bank sets obstacles that "constrain investment, raise costs and hinder economic cohesion".

Worryingly for the international community, committed to a two-state solution to the Israel-Palestinian conflict, there are now many ordinary Palestinians who conclude that the 1993 Oslo Accords should be scrapped.

"We need to go back 20 or 25 years before Oslo. The basic rules of this commitment are so bad for the Palestinian people," says Amr, who runs a market-stall in Hebron.

Settlement growth

The interim peace agreement produced the current zoning of the West Bank where the main Palestinian urban areas are under the administrative and security control of the PA, but 62%, known as Area C, remains under full Israeli control.

Protests in Hebron Economic protests in Hebron last month were some of the largest in the West Bank

Jewish settlements have rapidly expanded in Area C in the two decades since the Oslo Accords were signed. The World Bank warns that this restricts the fertile land and water available to Palestinians.

In Hebron, there is also an Israeli military presence to protect about 500 settlers who live inside the city. A survey by Israeli human rights groups in 2007 found that in the area they occupy over 1,800 businesses and warehouses had closed since the start of the second Palestinian intifada, or uprising. This was due to movement restrictions and some military orders.

"The Old City has been badly affected because of clashes and the Israeli soldiers coming overnight. Many people have moved out because they don't feel safe," says Omar al-Hroub, owner of a jewellery store.

The local governor, Kamal Ahmed is not surprised that Hebron residents have been venting their frustration.

"When we signed the Oslo Agreement we promised many things - freedom, ending the occupation, an independent state and a very good economic situation. It was supposed to take five years, but nothing happened," he says. "For this reason they are angry."

Paris Protocol

The cash-strapped PA says it is trying to take action in the face of rising social unrest. It has reversed some of its austerity measures and a fuel price hike.

Palestinian economic troubles

  • After averaging 9% in 2008-10, economic growth in the West Bank slid to 5% in 2011 and Q1 this year.
  • In Gaza, which is governed by Hamas, the slump in growth was from 20% to 6% over the same period.
  • West Bank unemployment rose to 19% in the first half of this year, while in Gaza it increased slightly to 30%.
  • The PA is now $1.2bn in debt to domestic banks after increasing borrowing to cover its budget shortfall.
  • It still faces a funding gap of $400m this year, which will make it hard to pay the large number of public sector workers.

Officials say they also want to change the terms of the 1994 Paris Protocol, which accompanied the Oslo Accords, and set out the terms of economic co-operation.

The deal established a customs union between Israel and the Palestinian territories and pegged value added tax to Israeli rates, currently set at 17%, so preventing any large price cuts in the West Bank.

Economists say revisions are possible, but warn that any tax reductions would hit the PA budget; currently, 70% of its tax revenues come from remittance of taxes collected on Palestinian imports from or through Israel.

They also point out that many of the biggest impediments to Palestinian imports and exports are due to Israeli security restrictions imposed from 2000, following the outbreak of violence.

The separation barrier built in and around the West Bank now prevents Palestinians who live there from entering Israel. Israeli military roadblocks and checkpoints, which Israel says are vital security measures, hinder movement within the territory.

Exports are frequently held up at Israeli crossing points and many imports that the military deems to be "dual purpose" materials (which can be used to make bombs, for instance) are banned or heavily restricted.

Manager holding shoe sole at Pama Shoes Company, Hebron Security clearance is needed to import a substance used to make shoe soles

At the Pama Shoes Company in Hebron, manager, Abdul Razek Ghabadu, says this can push up the costs of the products he sells to Israel and Arab countries.

"Importing and exporting is hard," he says. "The biggest problem is that we need special security permission for polyurethane, the chemical we use to make our soles. Sometimes this takes three or four weeks and we have to pay for the containers that are stuck in Israeli ports."

The Israeli government denies responsibility for the Palestinians' economic difficulties. However it is clearly worried about the possible consequences.

As a measure of its concern it recently gave 5,000 extra work permits to West Bank residents and points out other ways it is helping the Palestinian economy. Also recently for the first time it gave the PA an advance on its tax revenues.

The fear is, if the Authority, which was created by the Oslo Accords, was allowed to collapse, Israel would be left with a huge financial and security burden - a scenario Israel is desperate to avoid.

Map showing control of West Bank

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