Huleileh was interviewed by PIJ Co-Editor Hillel Schenker and
Gershon Baskin, the Israeli director of the Israeli-Palestinian
Centre for Research and Information (IPCRI) and a PIJ Editorial
Board member.
PIJ: Let's start with the state of the Palestinian economy
today.
Samir Huleileh: To describe it simply at the macro level, it's an
economy with an extremely high poverty rate - reaching the 70s in
Gaza and the 60s in the West Bank. Unemployment - according to its
restrictive, not general, definition - has reached an average of
26% in the West Bank and Gaza. What's new now is that there is a
large variance between the districts. We are no longer talking
about a simple, single economy functioning together in poverty or
in unemployment.
This is particularly true in the West Bank. Gaza is more uniform
and consistent. In Jenin, one of the vast agricultural areas, the
poverty rate is now 77%, as bad as it is in the refugee community
in north Gaza. In Nablus, the industrial capital of the West Bank,
the poverty rate has reached 69% - an unprecedented level for that
area - and it's because of the closure imposed on Nablus. Only
Ramallah has been spared this economic constriction; there the
poverty rate is 44%.
Why is Ramallah different?
It's important to realize that it's not the same consistent economy
anymore, so a description at the macro level does not necessarily
apply at the micro or regional level. Some sectors are prospering
and many others are deprived and problematic. In the last two years
the economy has been affected differently in each region.
Employment in the public sector is a major instrument in the
economy: In Gaza 47% of the work force are public employees, as
opposed to 17% in the West Bank, so the government affects the
economy substantially in Gaza but not in the West Bank. Therefore,
covering the budget deficit is extremely important for the survival
of Gaza. After the election of Hamas, the public sector - half of
the labor force - was not paid, but the Gazan economy could rely on
the private sector. Now after two years, it's exactly the opposite:
The private sector is bankrupt, and the public sector is paid. So
one half of the population is always subsidizing the other
half.
These are new factors: the role of government, the public
expenditure and the differences between provinces. This
characterization is the effect of the structured long-term closure
regime imposed in the West Bank after the intifada - the structure
undermining normal relationships and the smooth movement of people
and goods between West Bank cities, leading to extreme variations
in the West Bank. In the last five years many people looking for
jobs in Jenin have come to Ramallah. In Nablus most of the
businesses have moved to Ramallah. You see it in Ramallah, where
hundreds of businesses have moved in the last two or three
years.
Ramallah is absolutely booming. Everywhere you see construction,
people out in the streets, new restaurants, new businesses
…
It's not just that the central government is there, although it's
important. Most of the highly paid civil servants are located in
Ramallah: at least 1,000 directors general and several hundred
above that - secretaries, undersecretaries and ministers. Ramallah
has 15% of the public servants; 30% of what is paid to the public
servants is paid there. But even more importantly, 100,000 people
live between Jerusalem and Ramallah - mostly Jerusalemites, who are
paid more and are paying more in rents and services than in the
rest of the West Bank. And with the separation wall being built,
the center of the province is no longer Jerusalem but Ramallah.
Ramallah is prospering because these 100,000 people have been cut
off from Jerusalem.
What is happening on the East Jerusalem side of the wall?
It's simple. On Salah Eddin Street, you see far fewer people, far
fewer businesses. A recent survey reveals that poverty in Jerusalem
is higher than in Ramallah: 51% of the population is below the
poverty level according to Palestinian standards, and by Israeli
standards, close to 80%. In 1992 the per capita income in Jerusalem
was much higher than in the West Bank. That's not the case
anymore.
There is a perception that Gaza is on the verge of a very serious
economic crisis.
You may be surprised by how many shocks and how much pressure the
Palestinian economy can absorb - because the community is used to
being in crises for long, long periods. People know they are going
from one crisis to another, and they act accordingly. Half of the
population can always take on the burden, and this could be enough
to sustain the community for a long time.
Today in Gaza there is no industrial output, or very little, and
only half the investment in agriculture - because most of the
farmers did not plant, but those who invested in agriculture for
export need to start pressuring the Israelis and the international
community before the export season begins in November. Some basic
services and retail are still operating, because there are some
final goods, so people are still selling and buying. But they are
not producing.
They're mostly coming in through the smuggling routes. There are no
raw materials coming in, and very few final goods.
But at the end of the day, if this produces even 30% of the
economy's output, in addition to 47% of the labor force being paid
by the government, this will sustain the economy for a certain
period. Still, this is a major, unprecedented blow to the economy,
especially to the productive sectors. We have to buy everything
from Israel; we're paying Israel in shekels, but where will we get
those shekels? We're not working in Israel. The only way is to
physically bring shekels from Ramallah to Gaza, and to distribute
them as if you were printing money. That comes from the public
expenditure.
To what degree are the West Bank and the Gazan economies
functioning as a unit together, and to what degree are they
developing separately?
For the last three months, there's been an almost complete
separation - except for basic services like telecommunications. But
it's not possible, not permitted, to physically bring any material
in or out, including human resources. Not that we had a single
functioning economy in the past. Over the last seven years, a lot
of our trade has been to Israel or through Israel to Arab countries
and vice versa. But this could be temporary, because it's not
natural; it's not by request, but only because people are forced to
separate. That's why I feel that there is still a chance for us to
re-engage with Gaza economically, at all levels, not just services
or financially.
With the [Salam] Fayyad government in the West Bank, do you see any
changes?
There are two clear changes: First, tourism in the Jerusalem,
Jericho and Bethlehem areas is returning to the levels of 5-6 years
ago. We are talking about 70% and higher occupancy rates through
the end of the year. This is essential, but this is a
geographically small area and a small sector. The second component
is the payment of salaries and the repayment in the private sector
of arrears. We see it in the markets; the effect is clear: The
economy is accelerating and recovering its capacities. Also,
security and public order are becoming a major goal for the
government. You see the effects in most of the cities of the West
Bank.
Is there talk about new investments, about using the loan
guarantees that the Americans are making available to the private
sector?
People are still hesitant. You need a longer stable period, not
just a few months. Many people have paid a high price for investing
at the wrong time, without enough assurances from the politicians
that things are moving ahead.
What is necessary in the short term? What should be done now?
There are two sectors that we can invest a lot in, in addition to
the full repayment of arrears and salaries, the main income for
Gaza. If, at any time, we don't have enough to pay full salaries,
we should pay Gaza first for the time being, because Gazans depend
solely on this public expenditure. From a purely private-sector
point of view, investment in agriculture and in housing, in
particular low-income and affordable housing, should be the focus
of any program, if you want to create employment immediately.
Affordable housing is more resilient and less affected by the
restrictions on movement, because enough cement has been available
so far. Generally it's low-risk, so people don't mind investing in
housing.
What about the idea of building a new city between Ramallah and
Nablus?
That requires a more stable situation, and 5,000 units is a lot to
concentrate in one area. Investing 1,000 units in each region is
more socially coherent and meaningful. I'd prefer going into Areas
A and B, around the cities, with smaller projects that don't need
Israeli approval. The demand is spread across all the provinces,
not just in one province like Ramallah, where unemployment is just
13%. You need to create jobs in Jenin, Nablus and other
areas.
Having said that, investing in infrastructure is a must for the PA
and donors. Infrastructure projects have been stalled for almost
two years - water, in particular, but also electricity and roads.
Investment in these areas should come soon, because it is also an
employment mechanism, and housing and infrastructure could make a
real difference in the short term. By "short term," I mean no less
than six months. If you don't start now, you won't see it in six
months. I think we're already late. By mid-September Salam's
government will have been there for 90 days; they should mobilize
their resources immediately to work out specific projects to ensure
that something happens.
Of course, removing checkpoints and lifting the siege on cities
like Nablus and Jenin is the number-one priority for any
government, and this is what Israel should do, because without it,
things cannot move substantially. But we can invest in projects
where we can start generating some economic activity without being
jeopardized by an Israeli or political decision. We should work in
the margins around politics, to enable people to survive the
process.
What is Israel's responsibility? What would you ask Israel to
do?
Israel has been asked too many times in the last seven years to do
a few things, and to undo certain things, concerning the movement
issue in particular. They've been raising their security concerns
as the main reason not to make it possible, but they are not
justified. First, Jenin is considered to be a potential source of
"terrorism," but the movement to and from Jenin is smooth; yet this
is not the case for Nablus. Tulkarm and Qalqiliya are almost never
accused of being sources of potential terrorists; still, strict
closure is being imposed on Qalqiliya. There is no rationale that
we can see behind the strict closure regime in the West Bank, where
there are more than 500 checkpoints and roadblocks to prevent the
movement of people. We see only a political decision to punish, to
pressure, to put some political, not economic, price on it. The
second issue is the restriction on movement in the Jordan Valley,
which is not justified on a security basis, either.
It was claimed that some of these restrictions were removed last
month.
People are still required to have permits, or they cannot travel,
and it's the same for people to go to the Dead Sea. They said they
would consider removing the restriction, but the question is still:
Why did they impose it? This can tell you about the rationale
behind certain decisions. The third issue concerns the commercial
crossing points. This is being handled by the Americans, Israelis,
Europeans and Canadians, and still nothing substantial has been
done. What has been done is very technical, and if you deal
technically with the crossings, you will be caught up in the
Israeli details from security and political concerns. If you deal
with them as commercial entry and exit points, with some security
concerns, then things could be solved. The crossing points need an
Israeli political decision, not only army decisions, because they
leave us with a lot of technical details that lead us almost
nowhere.
Are you saying that no serious economic progress will be made
without political progress?
Everything we have been doing with the Americans and the
international community over the last few years is based on the
assumption that there is no decision on the Israeli side for making
movement easy. Israel's security decision, unchanged from 2000
through 2007, is: "Make it as strict as possible. Check
everything." So within that framework, everybody is making some
adjustments and corrections. They want to pressure us - Abu Mazen,
Salam Fayyad and ordinary Palestinians - to surrender, to give up
on the two-state solution and to accept whatever it is -
unilateral, not unilateral, even the continuation of the status
quo.
Since 2000, the Israeli army has said that it's a battle of wills.
The one who destroys the will of the other wins. That's why
politics, economics and closure were all used intensively, and the
battle is still going on. There has been no decision by the Israeli
government to stop this, and with a weak government, nobody in
Israel can stop this "low-intensity" war.
Do you see any hope for progress with the conference to be held
this fall, with what Olmert and the Americans are saying about
their desire for a political horizon to move forward? Abu Mazen has
been reporting to the cabinet members that the atmosphere is good
and progress is being made in the negotiations on the
principles.
The conclusion, as we see it, is that Israel is looking for some
"quiet time" for the next two years - either to prepare the
environment in Israel, or to continue the settlement activity - you
can interpret it as you wish. They are buying time, because if they
agree on principles and decide that they will go into the details,
they will want to sell us the hope that things are moving, but
without implementing anything on the ground. From a completely
moderate point of view, we can accept that, if we see direct
signals concerning the movement issue and the settlements. If you
are serious about the two-state solution, then you should stop the
settlement policy and undermine any attempt to expand settlements
over the next two years. Whatever Olmert concludes with Abu Mazen
does not commit Barak or Netanyahu, and they are the ones who will
implement whatever Olmert agrees to. And the new American
administration may not accept it.
The only chance that Olmert has of surviving beyond two years, or
even the next few months, is to make significant progress.
We need serious signals that Israel is changing its position and is
no longer in the "low-intensity" war of undermining the enemy. The
culture of unilateralism still runs deep in the army, the Ministry
of Defense and others. You need something big to change this. But a
prosperous economic development plan cannot substitute for serious
signals vis-à-vis the settlements and the closure regime,
reflecting a change in Israeli culture in how they deal with West
Bankers.
Assuming that negotiations do progress, what advice would you give
Palestinian negotiators on the economic chapter of the
agreement?
If the agreement is on final-status issues, a free trade agreement
(FTA) would be the maximum demand - not because we want it, but
because we have to evaluate the realities of 2007: First, we will
have a border or something similar, and it's possible to check the
origins of the goods coming in. This was not possible in 1995, when
the Paris Protocol was signed. So there is a possibility,
theoretically, to have an FTA, not just a customs union (CU).
Second, the difference between the two economies is becoming too
wide. Israel will not consult with the PA on any agreement with
other countries; we know that Israel's interests are different from
ours. The third, main component is that Israel still has and will
have security concerns, so it will impose, in the coming 10 years,
a strict security check on goods going into Israel or through
Israel to the Palestinian side. We can neither jeopardize nor link
our economy to that component. If Israel accepts a border with us,
no matter what and where it is, this will create a potential for
diversification and divergence from Israel - not completely but
marginally.
We have not yet utilized the potential for trade with Arab
countries to the maximum. With Jordan it's in the range of $50
million or 60 million, but the main problem is that our imports
from Jordan are very restricted. If you want to build an open
relationship with a country, it has to be more or less on an equal
basis. But Egypt, for example, consciously doesn't open up, because
it cannot export a lot of oil products into Gaza and the West Bank,
for obvious reasons. Now, if we think that we can negotiate better
deals with Egypt and Jordan and the rest of the Arab world, Israel
will pay the price, because much more of our imports will come
through Arab countries or from them, instead of through or from
Israel. This shift would immediately lower our import costs
dramatically, as well as the cost of the final goods. However, it
would require a differently structured economy.
In our Roundtable Discussion, there was a general debate whether
the Palestinian economy should look towards Israel or towards the
Arab world. Which direction should it look to, or should it look to
both?
We have not looked to any countries beyond Israel for a very long
time. The problem is Israel, not us. If Israel is ready to make it
smooth and easy for our goods to cross into Israel - all the time,
not just sometimes - to have it as a standard procedure, then
things will be based on competition, better prices and better
markets. However, Israel makes it very difficult for us now: it's
haphazard, it's security-based, we cannot intervene, etc.
For agriculture, Israel is still a major market. We have to invest
wherever we can, including in the Arab world. We shall not close
ourselves to Israel; this isn't an option. But we should have the
freedom to deal with Israel as we deal with the other countries.
The CU with Israel means that we have a preference toward Israel,
who does not want to facilitate for us movement into Israel. That's
why we should look for other markets.
If Israel were to say, "We want to take steps to open up our
markets to Palestine," would you then recommend continuing a CU
arrangement?
No, I think the FTA could go into a CU. Free trade is not the way
to separation; it's a restructuring of the relationship to
guarantee the basic interests of the Palestinians until Israel is
satisfied with, or is ready to make compromises on, the security
component, which we don't see happening.
What about the question of the labor force? There were, in the
past, 200,000 Palestinians working in Israel. Do you aspire to
return to that, or is that not desirable, or not possible? What's
the alternative?
We prefer that the Israeli labor market be open to our workers as
for others, with fair competition. If this is guaranteed, at least
we'd have a fair chance like the others. Currently there is a
system working against us; we are at a disadvantage. You don't need
to go back to the 200,000 level; a lot of our workers were absorbed
into the Palestinian work force. The total number of unemployed in
the West Bank and Gaza is around 200,000, and to lower the
unemployment rate to 10%, we'd have to employ 140,000. So if Israel
can take 40,000 or 50,000, this would make the unemployment rate
very reasonable.
Do you see a Middle Eastern Economic Union evolving in the future,
or is that too far ahead?
It's still a very distant vision. The political reality in the
region is not moving towards more cohesion. We need consistent
political structures in the region to be able to work together
smoothly economically: stability in Iraq, Iran, Lebanon, Syria and,
of course, in Palestine. Some regional groupings are possible,
including with Israel or Egypt or Jordan; however, to talk about
the region as a whole, as one body, a lot of work needs to be done
at the political level to build the infrastructure.
What is your vision for the future of the Palestinian economy? Some
people say that there will never be a viable economy, as there are
no natural resources.
I have full confidence, because we have a lot of special people.
What is missing in Palestine is stability; what is available is
something extremely unique in the Arab world: entrepreneurship and
a good human resource base - people who were trained the hard way.
With good people, and with this determination, good management of
the economy can take you wherever you want. It doesn't matter if
you don't have natural resources. We need stability, a lot of
investment in human resources, technology and innovation. I believe
in the Palestinian people and individual, who have done a lot in
the past and can again.