Death of exports, death of businesses under blockade in Gaza

14 June 2012

14 June 2012
Gaza

By Najwa Al-Sheikh

For Mujahed El Sosi, the general director of a furniture company in Gaza, the five years that have passed since the tightening of the Gaza blockade have felt equal to the fifty years of his lifetime.

A strong start

In 1987, he established Sosi Furniture Company, which became the best of its kind in the Gaza Strip. Before Israel imposed its blockade on the Strip, Israel and the West Bank had been the main export markets of Mujahed’s products. On average, the factory exported up to 25 large containers worth of futniture to Israel every year through the Karni crossing. With 150 workers, the factory was functioning at its full capacity to meet the needs of the market.

"Our products were of high quality and were competing well inside the Israeli markets", said Mujahed. He participated in dozens of furniture exhibitions in Jordan, Yemen, Cairo, Algeria, and many other international fairs – promoting  his products and finding good markets.

A lack of hope

Since the Gaza Strip was sealed, Mujahed’s work was severely affected; he was no longer able to buy the raw materials from Israel at the same prices. Accordingly, his company’s profits declined to less than five per cent of pre-blockade levels, and the number of his labourers decreased from 150 to only 35. "During the last five years, hopes of ending the blockade and of restoring the export of our goods were always in our minds, but there has been nothing to give us much hope", he continued.

The Israeli claims of lifting the blockade were just not reflected in Mujahed’s experience. From his point of view, the Gaza market has a surplus of raw materials, but manufacturers are not able to export their products.

Nowadays, Israel has allowed some goods out after much international mediation. Before the blockade, 130 to 150 trucks of furniture items were exported to Israel; now that has slowed to almost zero, and the process of exporting through the Kerem Shalom crossing is time-consuming and costly.

Lost opportunities

Mujahed went through a complicated, costly, and demoralising process to allow him only a ”one-time” export of some of his product samples to participate in an exhibition in Jordan; it took him 45 days to co-ordinate through the Ministry of National Commerce and the Ministry of Civil Affairs on the Israeli side, and then he had to wait another three weeks to receive approval from the Israeli side. In the end it cost him ten times more than he was paying before the blockade.

In addition, he said that he had to hire both Palestinian and Israeli labourers to help fold the items one by one, and re-package them again after they passed inspections at the checkpoint into Israel. Some parts of the furniture, like glass, were very fragile and delicate, and the manual inspection process on the Israeli side exposed them to damage and scratches.

According to Mujahed, "The samples that were sent to Jordan were severely damaged and were not accepted by the businesspeople attending the exhibition. In the end, we had to cover the costs of all the damage — which further hit our potential profits."

If the blockade ended

“If the blockade ended”, Mujahed said wistfully, “then we would resume our work with our previous clients, and export our products again. From this point, I would address the international community: help alleviate our suffering, and exert pressure on the Israeli side to scan the exported items to avoid any loss or damage.”

Key facts

  1. Ongoing restrictions against the movement of goods to and from Gaza are preventing sustainable economic recovery. As of today, exports from Gaza remain at less than five per cent of pre-2007 levels and imports at less than approximately 45 per cent of pre-2007 levels, despite limited measures in 2010 to ease restrictions on the import of some goods to Gaza. A total ban on the transfer of Gazan goods to its historic market in the West Bank, second in importance only after Israel, remains in effect as well. Of the few exports that have managed to leave Gaza this year, all have been seasonal agricultural exports or exports sponsored by international agencies, or both.
     
  2. New data from the Palestinian Central Bureau of Statistics confirms that the recent economic mini-boom in Gaza has reached a saturation point, with some gains beginning to reverse. Most economic gains took place from mid-2010 to mid-2011, with real GDP per capita growing by approximately 19 per cent in 2011. However, real GDP per capita showed stagnation in the last quarter of 2011 and as at the end of 2011, it remained at approximately ten per cent below 2005 levels. The closure of Gaza dealt a crushing blow to the economy, with a severe contraction of 39 per cent in real GDP per capita experienced from 2005-2009. As of June 2012, Gaza has yet to begin any sustainable recovery.
     
  3. After improvements to the unemployment rate from mid-2010 to mid-2011, the latest data from the Palestinian Central Bureau of Statistics show a reversal of these trends over the past year. Unemployment in Gaza increased in 2011 from 25.6 per cent in the second quarter to 31.5 per cent in the first quarter of 2012. Non-refugee unemployment increased more rapidly than refugee unemployment. While refugees have been partially protected from the extreme volatility of the Gaza economy over the last ten years by UNRWA’s job creation programme, severe funding shortfalls have slashed the number of jobs UNRWA is currently able to support by 70 per cent, or 23,000 jobs.  As a result, refugees may be experiencing the economic volatility in Gaza more acutely this year.
     
  4. Without access to exports, the Gaza economy has turned inward, transforming from a productive, export-driven economy to a consumption, demand-driven one. Analysis shows that the economic growth from mid-2010 to mid-2011 was primarily driven by demand, fueled by external assistance and the network of tunnels under the Egyptian border, and does not reflect an actual re-activation of the productive economy. The Gaza economy has progressively restructured itself around non-tradeable sectors which are incapable of sustaining the viability of a small, export-oriented economy. The manufacturing and agricultural sectors shrunk while construction and public and private services grew significantly. For example, in 2011 the manufacturing GDP was down by 68 per cent compared to its 2006 level. The increased prominence of construction and service sectors, which are comprised of unskilled and low-wage jobs, has driven wages down. In 2011, the average daily nominal wage was 11 per cent below its 2006 level.
     
  5. Entrepreneurs are investing less in businesses in Gaza, a further sign of the weak business performance and volatility of the economy. The rate of capital formation – the annual addition to a business’s productive capacity – fell by 85.4 per cent between 2006 and 2011. This means that the ways by which people in Gaza can internally generate income and employment into the future have been substantially repressed. Despite this, all business owners that UNRWA speaks to, unanimously indicate that they are ready to restart or expand their businesses, as soon as access to exports is re-established.

Footnotes:

1. Average monthly imports since the beginning of 2012 (according to OCHA reports) as a percentage of Paltrade’s baseline of 10,400 truckloads per month during the 2005-2007 period.

2. UNRWA provided 42,684 job creation programme (JCP) contracts in 2010 and 30,972 in 2011. Current projections indicate that an estimated 10,000 JCP contracts will be provided in 2012 due to budget shortfalls.

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