Bombs, Blockades and Unemployment Hamper Gaza's Economy

AOL News September 18, 2010

Matthew Kalman Contributor

RAFAH, Gaza Strip (Sept. 18) -- Abu Jihad didn't seem too concerned about the Israeli spy drones circling overhead as he showed the entrance to his smuggling tunnel that stretches more than half a mile 75 feet below the Gaza-Egypt border. He didn't flinch as the sound in the sky grew into the unmistakable roar of an Israeli F16 fighter-bomber seeking out its target somewhere in the vicinity.

"The Israelis don't bomb civilian tunnels like mine. They bomb the tunnels used to smuggle weapons across from Egypt. I don't do that," he said.

Abu Jihad -- his preferred pseudonym -- said he was more interested in protecting the $300,000 he invested in building the tunnel and the average $20,000 a day he has been earning smuggling consumer goods of all sorts into Gaza. On the best days, he could make as much as $50,000.

But since Israel loosened import restrictions on Gaza in July, his best days may be behind him. And while Gaza's economy has boomed with the freer access to consumer goods, international experts say it remains distorted by the continued blockade, an oversized public sector and rampant unemployment.

Just a half-hour after Abu Jihad ushered visitors through his tunnel on Sept. 15, Israeli jets bombed this Gaza border town, destroying what Israel said was "a Hamas-operated tunnel located on the Rafah border in the southern Gaza Strip" about half a mile away from Abu Jihad's enterprise.

The air strikes came in response to nine mortars and a Grad missile fired into Israel. The Hamas-controlled territory continues to be the launch pad for almost daily attacks against Israel, and the ruling Islamist resistance group refuses to countenance any chances of peace with the Jewish state.

When Israel controlled this area before 2005, many thought the government was exaggerating when it said there were 200 tunnels dug underneath the border. These days, a network of at least 1,200 tunnels has kept the local economy alive during a three-year Israeli blockade. They are all officially registered as "trading projects" with the Rafah Municipality. An operating license costs about $2,500. The fees probably go to the Hamas government, which also collects import duties on the smuggled goods from the merchants who order them.

Abu Jihad says proudly that only about 20 or 30 of the tunnels are as deep and wide as his. He has strong winches at either end, which pull a steel cable attached to a long, boatlike sled made of fiberglass that is filled with goods and pulled from end to end. It is powered by electricity from Egypt that is often interrupted, but a backup generator is on hand for power outages.

When business was at its height, Abu Jihad could charge $2,000 per ton. He once smuggled a cow -- "A small one," he said -- and sent out several desperately ill babies for medical treatment in Cairo hospitals.

He is undeterred by the occasional Israeli air strikes and unaffected by a steel barrier sunk by the Egyptians along the border to a depth of about 50 feet. Colleagues with tunnels nearer the surface either cut through the barrier with a blowtorch or simply dug underneath it and carried on.

But Abu Jihad's business was brought to a sudden halt in July when Israel eased its embargo on consumer goods and began allowing merchants to truck most previously banned items into Gaza through land crossings from Israel. He said he hasn't worked for more than a month. About 6,000 Gazans previously employed in the tunnels are suddenly out of a job. For the first time in three years, the border area around the tunnel openings in Rafah -- many hidden rather obviously beneath flimsy tents -- is almost silent.

The shops are now full of food and clothes. Even luxury electronic goods like washing machines and flat-screen televisions are readily available in sparkling showrooms in Gaza City. According to an International Monetary Fund report produced for a conference next week of international donors to the Palestinian Authority, Gaza's economy has grown by a startling 16 percent this year, compared with just 1 percent in 2009 at the height of the blockade.

But the IMF warns that the situation is far from healthy. The official rate of unemployment has risen from 36 percent to 39 percent in the past year alone.

Employment rates among Gaza's rapidly growing population of 1.5 million are kept artificially high by a bloated public service sector. The largest employer is the Ramallah-based Palestinian Authority, which pays more than 60,000 public servants not to work under the Hamas-controlled Gaza regime.

Hamas itself employs about 35,000 people as civil servants and security officials, while the U.N. Relief and Works Agency that services the half-million refugees in the coastal strip employs another 11,000 people, as well as providing food aid and welfare to the 150,000 refugee families who make up a third of the population. The U.N. World Food Program gives aid to another 60,000 families, and the European Union supports another 40,000 hardship cases.

A World Bank report prepared for the donors conference says the situation is not likely to improve as long as Israel supplies consumer goods but not raw materials that could help rebuild a self-sufficient private sector in Gaza's economy and create new jobs.

"Exports from Gaza continue to remain prohibited, which, combined with the restrictions on entry of some raw materials and inputs, precludes the revival of the private sector," the report says.

The World Bank says per-capita gross domestic product in Gaza is $800, compared with $1,600 in the West Bank and $2,200 a decade ago. Economist Omar Shaban, president of PalThink, a Gaza-based strategic studies think tank, says easing the blockade has ended the careers of men like Jihad, but it has not ended Israel's political and economic suppression of Gaza.

"Why do we need to be poor? Why do you look at me as a person who just needs food?" Shaban asked AOL News. "I need books, I need software, I need toys. I can be part of the civilization of the world. This area has a huge potential. Before the new Israeli policy, we used to have five soft drinks. Now we have seven. I'm still in prison, regardless of the food you provide me. I want to be free. It's not about food."