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PALESTINIAN ECONOMY SEES FIRST RECESSION SINCE 2006 The prospects for 2015 are expected to be bleak. By Kanaga Raja With contraction in growth of 0.4% in 2014, the economy of the Occupied Palestinian Territory witnessed its first recession since 2006, the United Nations Conference on Trade and Development (UNCTAD) has said. In its report on assistance to the Palestinian people, UNCTAD attributed this deteriorating situation mainly to the Israeli military operation in the Gaza Strip, which took place during the conflict in July and August 2014, as well as to a range of discriminatory policies imposed on the Territory. Hopes for sustainable development to begin in the Occupied Palestinian Territory sustained another setback in 2014 and early 2015, said UNCTAD. Given 5% GDP growth in the West Bank and a drop of 15% in Gaza's GDP, the Palestinian economy contracted by 0.4% in 2014 and GDP per capita further shrank by 3.3% in that same year. According to UNCTAD, the prospects for 2015 are bleak, due to volatile political conditions, reduced aid flows, the slow pace of reconstruction in Gaza and lingering effects of Israel's withholding of Palestinian clearance revenue during the first four months of 2015. The report also found that if the current blockade and insufficient levels of donor support persist, even with a reversion to the status quo that prevailed before the latest military operation, Gaza will become economically unviable. The report has been prepared in advance of the sixty-second session of UNCTAD's Trade and Development Board, scheduled to take place from 14-25 September. According to the UNCTAD report, the Palestinian economy is the economy of an occupied territory, and therefore – contrary to the claims of some observers – the efficacy of donor support has been undermined by occupation, not by the inadequacy of Palestinian National Authority policies or poor donor coordination. "No amount of aid would have been sufficient to put any economy on a path of sustainable development under conditions of frequent military strikes and destruction of infrastructure, isolation from global markets, fragmentation of domestic markets and confiscation and denial of access to national natural resources," said UNCTAD. In 2014, unemployment increased by 3 percentage points to 30% -- 44% in Gaza (the highest level on record) and 18% in the West Bank. However, said UNCTAD, the real depth of unemployment and the attendant waste of human resources are greater than that indicated by unemployment rates, due to the prevalence of underemployment and masked unemployment. The contraction of the Palestinian per capita GDP by 3.3% and the extremely high unemployment rates subject large sections of the Palestinian population to poverty and food insecurity. Before the military operation in Gaza and the economic contraction in 2014, food insecurity in the Occupied Palestinian Territory was already very high, with one in three households food insecure, according to 2013 data. UNCTAD said conditions were worse in Gaza, where nearly 6 in 10 households were food insecure compared to 1 in 5 households in the West Bank. Israeli settlements in the West Bank continued to expand, and the number of settlers has quadrupled since the Oslo Accords. Today, settlers outnumber Palestinians in Area C (61% of West Bank area), which includes the most valuable Palestinian natural resources. Overall, 341,000 Israeli settlers live in 235 settlements and outposts in Area C, compared to 300,000 Palestinians. Settlers' violence against Palestinians and their productive assets continued, with 9,333 productive trees destroyed or vandalized in 2014. The violence escalated in 2015 - in January alone, another 5,600 trees across the West Bank were uprooted or vandalized. Towards the end of 2014, the movement of Palestinian people and goods in the West Bank was hindered by 490 barriers installed by Israel, including checkpoints, roadblocks, trenches and the Separation Barrier, which runs into the Occupied Palestinian Territory and unilaterally re-defines the borders away from the internationally recognized Green Line. The report said that the high costs and unpredictability fostered by multiple constraints on movement subvert the actual and potential investment of exports-oriented firms and enhance the dependence of the Occupied Palestinian Territory on imports. In 2014, imports jumped from 55% to 61% of GDP, but exports failed to keep pace and the trade deficit widened from 38 to 43% of GDP. Isolation from global markets forced the Occupied Palestinian Territory into overwhelming dependence on unbalanced trade with Israel. In 2014, the Palestinian trade deficit with Israel was more than $2.5 billion, or 93% of net current transfers. UNCTAD noted that despite the adverse conditions, the Palestinian National Authority continued its fiscal reforms and was able to increase revenue and reduce the fiscal deficit from 12.6% of GDP in 2013 to 11.9% in 2014. UNCTAD cited the International Monetary Fund (IMF) as projecting that recent destruction in Gaza will increase the fiscal deficit by an additional 3% of GDP. UNCTAD said: "Unless donors increase aid to the Palestinian National Authority in 2015 and beyond, socio-economic conditions in the Occupied Palestinian Territory will become more dire, jeopardising not only the institutional achievements of the Palestinian National Authority, but the Authority itself, with unpredictable political consequences." THE SITUATION IN THE GAZA STRIP According to the report, three Israeli military operations in the past six years, in addition to eight years of economic blockade, have ravaged the already debilitated infrastructure of Gaza, shattered its productive base, left no time for meaningful reconstruction or economic recovery and impoverished the Palestinian population in Gaza, rendering their economic well-being worse than the level of the two previous decades. The most recent military operation compounded already dire socio-economic conditions and accelerated de-development in the Occupied Palestinian Territory, a process by which development is not merely hindered but reversed. Since the blockade initiated in 2007, exports from Gaza have been almost completely banned, imports and transfers of cash severely restricted and the flow of all but the most basic humanitarian goods suspended. The most recent military operation, in 2014, impacted an already paralysed economy at a time when socio-economic conditions were at their lowest since 1967. This operation therefore had a more severe impact on socio-economic conditions compared to the previous two military operations in 2008 and 2012. While per capita GDP in Gaza today is at 72% of the level in 1994, it is two thirds that of the level in the West Bank, and the gap between Gaza and the West Bank has widened since 2007, when mobility restrictions to and from Gaza were tightened by the blockade. Unemployment trends in Gaza mirror trends in the GDP. In 2014, unemployment reached 44%, the highest level on record. Unemployment among young women refugees in Gaza is severe - statistics indicate that more than 8 out of 10 women in that demographic group are out of work. "The ramifications of persistently high unemployment rates on the standard of living and Gaza's human capital will be long-lasting, as lost skills and human capital are difficult to replace and prolonged spells of unemployment de-skill workers and render their education and training obsolete." The report also said that the latest military operation has effectively eliminated what was left of the middle class, sending almost all of the population into destitution and dependence on international humanitarian aid. With the destruction of the economy and its capacity to create jobs, food insecurity now affects 72% of households. The number of Palestinian refugees solely reliant on food distribution from the United Nations Relief and Works Agency for Palestine Refugees in the Near East (UNRWA) increased from 72,000 in 2000 to 868,000 by May 2015, representing half the population of Gaza and 65% of the registered refugees. In addition to the blockade, in a span of six years, Gaza endured three consecutive military operations - the first from 27 December 2008 to 18 January 2009, the second between 14 and 21 November 2012 and the third for 50 days from 7 July to 26 August 2014. UNCTAD said that to date, no complete inventory of the economic effects and/or damage in Gaza during the latest military operation has been compiled, yet it has undoubtedly had a far more catastrophic impact on the population, infrastructure and productive base, compared to the previous two. Entire neighbourhoods were affected and almost one third of Gaza's population was displaced. According to OCHA and UNRWA, over 500,000 Palestinians were displaced during the operation, with some 100,000 continuing to be displaced by mid-2015. According to UNCTAD, between 2012 and 2014, over 64,000 residential units and at least 1,000 industrial and commercial establishments were destroyed or damaged. The value (not cost of replacement) of assets in Gaza damaged as a result of the last two military operations is estimated at more than $2.7 billion. This is nearly equal to what could be produced by Gaza's economy in an entire year (93% of Gaza's GDP in 2014). Destroyed or damaged assets are not the only direct costs. Another source is the loss of GDP due to the interruption of production during military operations. The World Bank estimates that the 50-day interruption of productive activities in 2014 reduced Gaza's GDP by $460 million. Adding the GDP loss to the costs of destruction gives a direct cost for the last two military operations of $3.2 billion. With regard to the military operation in December 2008-January 2009, UNCTAD estimated the direct economic losses at about $2.5 billion, or 160% of Gaza's GDP in 2008. The total of the damages of the three military operations from 2008 to 2014 gives an amount of direct losses nearly equal to what could be produced in three years by the 1.8 million Palestinians living in Gaza. However, the total cost may be substantially higher if indirect losses and lost future income streams are included. UNCTAD also said that during the last six years, Gaza has endured severe human losses, with three military operations claiming the lives of at least 3,782 Palestinians and 95 Israelis. According to OCHA and UNRWA, in 2014, Gaza witnessed the highest civilian death toll since 1967. By May 2015, 20% of Gaza's population, or 360,000 people, needed treatment for mental health conditions, and there is already a serious shortage of such services. With regard to children, Gaza's future human capital, 521 lost their lives, and about 1,000 were injured and 400,000 are in need of immediate psycho-social support. The report noted that to mitigate the impact of the blockade on Gaza, a tunnel economy evolved and peaked between 2007 and 2013, with more than 1,532 underground tunnels running under the 12 km border between Gaza and Egypt. While the tunnels prevented the complete collapse of Gaza's economy, they were unsustainable, informal, uncontrolled and unregulated by governments on either side of the border. They were closed by mid- 2013. The size of the tunnel trade was greater than the volume of trade through official channels, said UNCTAD. According to the United Nations Human Settlements Programme, based on the materials allowed in by Israel, it would have taken 80 years to rebuild the 6,000 housing units destroyed during the military operation in December 2008-January 2009. However, imports through the tunnels were so significant that they reduced the timeframe to five years. Similarly, Gaza's power plant ran on diesel from Egypt brought through the tunnels in the range of 1 million litres per day before June 2013. Nevertheless, said UNCTAD, tunnels could not supply Gaza with the level and composition of imports needed for rebuilding a productive economy and, equally importantly, tunnels had no impact on Gaza's export sector. "Therefore, the end of the tunnel economy makes the complete and immediate lifting of Israel's blockade on Gaza more urgent than ever if Gaza is to have a chance to avoid further damages and develop into a liveable place." Following the ceasefire in August 2014, Gaza's reconstruction has been slow due to the continued blockade and inadequate flow of donor support. By May 2015, not a single destroyed home had been rebuilt and no progress had been achieved in the reconstruction and repair of the destroyed infrastructure, factories, houses, hospitals and schools. The Palestinian National Authority drafted a National Early Recovery and Reconstruction Plan, in which the cost of relief, recovery and reconstruction was estimated at $4 billion, equivalent to 137% of Gaza's GDP and 146% of the Authority's total revenue in 2014, and thus evidently far beyond the capacity of the Authority. At the Cairo Conference on Palestine-Reconstructing Gaza, held in October 2014, donors pledged $5 billion to the Occupied Palestinian Territory, of which $3.5 billion was pledged for Gaza. Eight months on, by mid-May 2015, only 27% of the sums pledged had actually been disbursed. Of the $3.5 billion in pledges for Gaza, only $2.5 billion was for new pledges. The latter represents only 63% of the cost of reconstruction and therefore falls short of the funds needed to return Gaza to the situation before the military operation, when socio-economic conditions were at their lowest point since 1967. "If the current blockade and insufficient levels of donor support persist, even with a reversion to the status quo that prevailed before the latest military operation, Gaza will become economically unviable and the already grim socio-economic conditions can only deteriorate. The likely outcome will be more conflict, mass poverty, high unemployment, shortages of electricity and drinking water, inadequate health care and a collapsing infrastructure. In short, Gaza will be unliveable, as emphasized by the United Nations," said UNCTAD. – Third World Network Features. -ends- About the author: Kanaga Raja is the Editor of the South-North Development Monitor (SUNS) in Geneva, Switzerland.
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