Commerce in a Time of Occupation

Creativity is essential for Palestinian merchants in Ramallah, above, and elsewhere in the occupied West Bank, with its many checkpoints and roadblocks.
Creativity is essential for Palestinian merchants in Ramallah, above, and elsewhere in the occupied West Bank, with its many checkpoints and roadblocks. (By Nasser Ishtayeh -- Associated Press)
By Howard Schneider
Washington Post Foreign Service
Saturday, May 9, 2009

RAMALLAH -- With the checkpoints, piles of dirt dumped to block traffic and heavily guarded openings in a miles-long security barrier, Imad Hindi said, it is not always easy to deliver a truckload of Coca-Cola in the occupied West Bank.

Israeli security measures, Hindi said, make it an exercise in planning, skillful route design and adaptability, particularly when the military opens one road or closes another.

And it's expensive. Hindi, general manager of Ramallah-based National Beverage, said the company's logistics costs are three times the industry standard.

"With time, we have created sort of a flexible practice," Hindi said. "We move according to the roadblocks."

Israeli Prime Minister Binyamin Netanyahu has said he wants to make Palestinian economic development a priority, arguing that traditional peace negotiations will not succeed until Palestinian society is stronger and more stable. With the Gaza Strip's 1.5 million residents under the control of the Islamist movement Hamas and effectively sealed off from the outside world by an Israeli blockade, Netanyahu's strategy is aimed largely at the West Bank, where the moderate Palestinian Authority holds sway.

But Palestinian entrepreneurs, international economic analysts and diplomats contend that the economy of the West Bank, which has about 2.5 million Palestinian residents, will not meaningfully improve unless Netanyahu eases the restrictions on their economic life -- from the ability of companies to obtain raw materials and send products abroad, to workers' freedom to commute to their jobs. While the eruption in 2000 of a violent intifada led to many of the restrictions, they argue that improvements in West Bank security over the past two years, and the increasing effectiveness of a U.S.- and Jordanian-trained Palestinian security force, warrant a loosening of Israeli rules.

'Incremental Progress'

Palestinian business people, from large investors and manufacturers to small merchants, are brimming with examples of the way the restrictions crimp efficiency: the pharmaceutical maker suddenly told of limits on importing glycerin; the real estate company with a half-billion-dollar project waiting in part for Israeli approval to bypass a checkpoint near a small Jewish settlement; the new cellphone company waiting for Israel's promised assignment of radio spectrum.

Netanyahu "wants to help us economically? Give people a clearly labeled policy on entry into the West Bank and moving within the West Bank," said Sam Bahour, a Palestinian entrepreneur. "For investment to reemerge, incremental progress is not enough."

While philosophically in favor of free markets -- which require easy movement of people, goods and capital to function most efficiently -- Netanyahu was elected more for his tough line on security. How to reconcile the two when it comes to the West Bank is one of the central decisions he faces. The issue will probably figure into upcoming discussions with President Obama over the future of the Arab-Israeli peace process.

Netanyahu this week set up a special committee, which he will chair, to oversee the initiative to improve the Palestinian economy. It will include the government's top cabinet members.

Though members of the new government have talked in general terms about helping Palestinian companies navigate the Israeli bureaucracy, Netanyahu's office has not committed to broader reform -- and particularly has not indicated whether he agrees that security improvements justify an easing of existing restrictions.

Enforcement of those restrictions is overseen by a branch of the Israel Defense Forces, the Civil Administration of Judea and Samaria, the name Israel uses to refer to the West Bank. In an interview, a top civil administration official said Israel is gradually relaxing some West Bank restrictions and noted the opening of major roads previously closed to Palestinian travel, a recent rise in Palestinian truck traffic into Israel and a jump in the employment of Palestinians in Jewish settlements as evidence of economic improvement.

But he also made clear that change will be introduced only on a case-by-case basis and that fresh violence would undo any progress.

"You don't take big bites, otherwise you are going to get choked," said Lt. Col. Sharon Biton, head of operations for the civil administration.

'Change at Speed'

The World Bank, United Nations and others have noted in studies that there has been little overall improvement in the rules governing the West Bank economy, which some now describe as having been reduced to a group of "microeconomies" because of barriers to the movement of people and products. Middle East special envoy and former British prime minister Tony Blair, meanwhile, has been pushing the Israelis to move more quickly on specific projects while also arguing for broader steps, such as opening the Jordan Valley -- agriculturally rich but sparsely populated land deep inside the West Bank -- to Palestinian development.

"People can understand that Israel has a security problem and take account of it, but that does not really justify why some guy living in a village down in the Jordan Valley can't build a house," Blair said in an interview. "We need an Israeli system to be sensitive and willing to change and willing to change at speed."

For more than a year, attacks in or emanating from the West Bank typically have involved individuals acting on their own, rather than what security agencies refer to as "guiding hand" operations supported by militant organizations. Palestinian forces are a steadily increasing presence in the West Bank, controlling the downtowns of such cities as Ramallah, Nablus and Jenin. The West Bank stayed largely quiet during Israel's Operation Cast Lead in Gaza, the three-week offensive that took place in December and January.

"People were concerned and worried about lots of civil unrest and some even predicted a third intifada," or uprising, said Dov Schwartz, an aide to Lt. Gen. Keith Dayton, the official in charge of the U.S.-backed effort to train Palestinian security forces. "The law and order in the West Bank during Cast Lead was a clear progress report on the Palestinian Authority security forces. They passed the test."

After the signing of the 1993 Oslo peace accords and throughout the 1990s, the West Bank and Gaza combined grew at a healthy 6 percent annually, according to the World Bank. That stopped with the second intifada, which proved disastrous economically. According to the World Bank, Palestinian gross domestic product in both areas peaked in 1999 and has fallen by about 30 percent since then. Current per capita income is about $4,000 a year.

Gaza's economy has been decimated in particular by an Israeli blockade imposed after Hamas won Palestinian parliamentary elections and ultimately took control of the strip.

The West Bank remains, to a large degree, stagnant, according to World Bank studies and other analysts. The GDP increased in 2008, and some specific areas did well -- there was a marked increase in tourism to Bethlehem, for example.

The growth, however, was largely driven by $1.8 billion in international financial aid that allowed the Palestinian Authority to pay overdue bills and keep its payroll current. Unemployment in the West Bank topped 20 percent by the end of 2008, according to a recent World Bank research report, while foreign aid accounted for roughly 30 percent of Palestinian GDP.

The Palestinian economy "is becoming ever more aid dependent," the bank concluded. "The productive base of the economy has not recovered."

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