Cash Injection Into Gaza No Easy Fix

2005-07-11

Harvey Morris

Financial Times (London)

http://news.ft.com/cms/s/ 6668e8ec-f1a7-11d9-9 c3e-00000e2511c8.html

Gazans used to be promised that, if peaceever broke out, their 370 sq km strip of the Mediterranean coast would become the "new Singapore".

After the optimism of the 1990s dissolved in the violence and recession of the past five years, expectations are more modest, in spite of Israel's imminent withdrawal from the territory and a pledge last week by the group of eight leading industrialised nations to treble aid to the Palestinians over the next three years. The outside world has been spending about $1bn (EUR838m, GBP 575m) a year since the Palestinian uprising began in 2000 to counter the effects of an economic collapse that, in relative terms, was on the scale of the great depression.

Leaders of the G8 countries announced after last week's summit in Scotland that they supported a global financial contribution to the Palestinians of up to $3bn annually over the next three years.

The logic of the proposal, being masterminded by James Wolfensohn, former president of the World Bank, is straightforward: Israel is leaving the Gaza Strip later this year, opening the way for the international community to fund an economic turnround that would create jobs, improve everyday life and establish an environment conducive to peace.

With fewer than 40 days until the start of the Israeli withdrawal, Palestinian Authority officials are working intensively on projects to boost the economy. However, some Palestinian analysts warn that in the absence of progress towards a comprehensive peace settlement, the proposed aid package may turn out to be good money chasing bad.

Mr Wolfensohn, special envoy of the international quartet - the United Nations, US, European Union and Russia - is visiting the region to continue the task of what aides describe as "knocking heads together".

They say he has made considerable progress in persuading Palestinians and Israelis that they have to co-ordinate the Gaza withdrawal to ensure it benefits both sides. Until his arrival on the scene, they had not progressed beyond agreeing an agenda.

Mr Wolfensohn will be pressing them for answers on topics that range from the post-withdrawal regime at border crossings to the fate of Jewish settlement greenhouses, soon to be abandoned.

Palestinian officials accuse the Israeli government of dragging its feet over co-ordinating the disengagement, although some acknowledge that Ariel Sharon, prime minister, is understandably anxious to prevent Israelis concluding that withdrawal will reward the Palestinians with an economic bonanza.

Some Gaza economists think the economic benefits will be limited, or even non-existent, if Israel does not guarantee movement of trade in and out of the territory. The potential opportunities have attracted a high level of international interest. Mr Wolfensohn hopes to build on that to encourage Arab states and private investors to put money into the Palestinian economy.

The Palestinian Authority is seeking a chief executive officer for a new $100m private investment fund for projects in Gaza.

Palestinian economists also hope the economy will be able to tap into $60bn of private capital held by Palestinians abroad.

Nevertheless, many remain cautious. Salah Abdel Shafi, a Gazan business consultant, said local labour costs were uncompetitive as they reflected the high cost of the Israeli goods and services that dominated the Palestinian market.

He was also concerned about Israel's intention to suspend the import of Palestinian labour, on which the Gaza economy relied, by 2008. "As for taking over the settler greenhouses, they are no good to us unless we can guarantee to export the produce," he said.

Yasser Najjar, a PA official who deals with relations with Europe, said there was as yet no final agreement on reopening Gaza's airport and seaport, projects that could create thousands of jobs for the 1.3m population.

In spite of the reservations, there are indications that some investors are confident of an economic take-off. Officials at the PA's public works ministry said property prices had at least doubled in Palestinian neighbourhoods near the soon-to-be-evacuated Jewish settlements. "You might call it speculative gambling on future stability," a senior official said.

Source: IMRA – Independent Media Review and Analysis