The Cost of the Closure: Israeli Economic Measures in East Jerusalem
Israeli Economic Measures in East Jerusalem: an Interview with Samir Abdullah

The closure, which the Israelis say is security-inspired, is the most obvious example of Israeli policy in East Jerusalem which affects the Palestinian economy. What was the impact of the closure imposed in March 1993, which cut off the city from the rest of the Occupied Palestinian Territories (OPT)?

In order to understand the importance of the closure of Jerusalem, you must consider what Jerusalem means in the Palestinian economy, and the relationship between Jerusalem and the rest of the West Bank and Gaza. Jerusalem is a heavily populated Palestinian city. It houses more than 160,000 Palestinians, and many, many more depend on Jerusalem as a workplace and trade center. In terms of health, education, culture, religion, commerce and so on, Jerusalem is integral to Palestinians, and day-to-day access to Jerusalem is essential.
In the surrounding area of the city, there are 100,000 people who used to rely on the Jerusalem market to sell their produce. Economically, Jerusalem is also the trade center for the whole West Bank. People used to make all of their purchases in Jerusalem. Since the closure, the Palestinians do not have access to that market. Closure means Jerusalem is cut off from the rest of the OPT, without providing any substitute for the Palestinians who relied on Jerusalem or for the Jerusalemites who used to make their living from internal trade.
Many institutions in Jerusalem also employed a lot of workers from out¬side the city, from Ramallah, Bethlehem and other places. Cutting off Jerusalem severely disrupted their work.

Can you give me an idea of what that means in terms of economic losses?

Fifteen percent of the Palestinian economy is based in East Jerusalem, an economy of about $450 million per year. I believe this has declined by at least 40 percent since the closure [in March, 1993].
At the same time, there is an Israeli policy of "squeezing" Jerusalem mer¬chants. Take, for example, the Arnona [property tax]. The Israelis have classi¬fied the Palestinian areas of Jerusalem in the category which pays the highest rate of Arnona - the whole Old City, for example. If you make money or not, you still pay this tax. In addition, the merchants must pay VAT, and income tax, which the Israelis calculate arbitrarily, on the basis of estimates. And ser¬vice industries, and public institutions, for example, have lost workers.

The levels of taxation are unquestionably high, and that is difficult for business in East Jerusalem. But taxes are high for Israelis; this is a highly-taxed society.

Yes, but for Israelis it is business as usual, they are not affected by the closure. Few Palestinians went shopping in the West before the closure. Businesses in the East have seen their sales decline up to 60 percent. And the Israelis are still estimating income, for tax purposes, as if it were normal.
Before the closure, taxes were high but people at least had their profits. They could survive. Now, you find a very high level of bankruptcy, because we can't afford high taxes with low sales, or no sales.

But how hard has this hit the Palestinian economy as a whole? Has the economy in places like Bethlehem and Ramallah picked up, since people don't have access to East Jerusalem? Is the damage from the closure localized to Jerusalem?

To some extent. Merchants in Bethlehem and Ramallah take part of the demand, formerly concentrated in Jerusalem. But not at the previous level, because the closure affects other areas besides sales. It denies workers access to the Israeli market. This leads to high unemployment and a decline in purchasing power.

How many workers are affected?

Before the closure in March 1993, there were 120,000 workers employed in Jerusalem and Israel from the OPT. That dropped to zero after the first clo¬sure, and then climbed back to reach a maximum of 60,000 before the kid¬napping [of IDF soldier Nahshon Wachsman] in September 1994. After that, it declined to zero again, and picked up to a bit more than 40,000. Since Beit Lid [January 1995], it has declined to less than 20,000.

How many of those people are able to find alternative sources of income, when they are denied access to Jerusalem and work in Israel?

There is no alternative income outside Israel. Our economy cannot absorb this number. Look at the history ¬in the normal situa¬tion, between 1970 and 1987, the Palestinian economy opened 1,000 new job opportunities each year. The increase in the Palestinian labor force each year is 14,000 (as a result of population growth). So 1,000 of them find work in the Palestinian labor force, and the rest seek work outside the Palestinian economy.
The result of the continuous closure is that Israeli companies shifted from using the Palestinian laborers to foreign laborers, and many jobs were filled by Jewish immigrants. Demand for Palestinian labor, because of this disruption, declined ¬Israelis do not want to risk using this labor, even if it is cheap, because it is not sus¬tainable, and the result is this level of unemployment [estimated at 60 percent in Gaza and 35 percent in the West Bank].

Especially in terms of Jerusalem, have Israeli measures against Palestinians, generally, and specifically economic, been detrimental to their own economy?

Every Palestinian laborer denied access to the Israeli market costs us $27 a day. But it costs the Israelis NIS $67. (If the worker does not produce three times his or her salary they won't hire him/her.) So their losses are of a magnitude much greater than ours. But those $27 are much more important for us. We are a $3-billion economy, while they are a $60-billion economy.
So if you take the losses from the latest [total] closure, 40,000 laborers at $27 a day, that is about $1.1 million. This is our daily loss from wages, only. The closure also means disruption of trade, internal and with Israel. The total is at least $3.3 million each day.
The Israelis are losing about $2 million a day. For 300 work days, that's about $600 million a year. In an economy of $60 billion, their losses are about one per¬cent of their GDP, lost from the workers with no access to Jerusalem or Israel.
For us, it is $300 million, out of $3 billion, which is about 10 percent of our economy. You must multiply that by three because of the disruption of trade, both internal and external, with Israel. That's 30 percent of our GDP.

What part caused by the closure of Jerusalem?

Jerusalem is 40 percent, or $450 million, those are continuous losses. Access is almost totally denied: very few people get permits, and nobody strug¬gles to get a permit just so they can do their shopping.

The Israeli government has its plan for the physical separation of Palestinians, which would seem to suggest continued separation from Jerusalem. What is the implication for the Palestinian economy?

It won't work… Separating the West Bank and Gaza from Israel will cut our trade with Israel, deny our laborers access to their markets. Israel will also cut East Jerusalem off from its natural environment, its natural mar¬ket, its natural customers, so its economy will continue to wither. That is part of the Israeli policy to evacuate East Jerusalem, through the bankrupt¬cies and so on, to make the city more and more Jewish, to change its status.
We are ready to finish with Israel, but we must have our independence, even economic - we must have free access to international markets.

Are you willing to accept economic separation from Israel, although it would be detrimental, if it is accompanied by political separation?

If it is accompanied by political separation: self-determination for the Palestinian people, and an independent Palestinian state. Economically, it will be very difficult. But we are ready to live with it, because it will be tem¬porary. We will have alternatives for our exports, free access to interna¬tional capital, which we will be free to invite to invest here.

In the scenario of separation we were discussing, which you said you would accept, what happens to East Jerusalem? How can half of the city be economically separated?

If the Israelis want separation, it should be political rather than economic and it must be agreed by both peoples on a basis of mutual benefit. No other enforced separation provides a solution for them or for us, in the long run. Jerusalem should become a city of peace and security for both people.

Stephanie Nolen is the design and production editor of the Journal. She holds an MSc in Economics (Development Studies) from the London School of Economics.