Warning signs in Palestine

Published in MEED, 13 December 2015

The West Bank leadership look as vulnerable and weak as the economy it oversees.

With so many crises in the region, from Syria to Libya to Yemen, one long-standing problem is in danger of being ignored. Yet the situation in the Palestinian territories is deeply worrying, with warnings that the Palestinian Authority (PA), led by Mahmoud Abbas, could be close to collapse.

US Secretary of State John Kerry raised the possibility in an ominous speech to a US-Israeli forum in Washington on 5 December. “There are valid questions as to how long the PA will survive if the current situation continues,” he said.

The situation he was referring to is one of increasing violence and mutual distrust. Over the course of this year, Israel has continued to expand its illegal settlements in the West Bank and there have been sporadic but increasingly regular attacks by Palestinians in Jerusalem and the West Bank and occasional rocket launches from Gaza.

“I’ve had a lot of discussions with both sides over the past three years, and let me tell you the level of distrust between them has never been more profound,” said Kerry. “I am concerned that unless significant efforts are made to change the dynamic – and I mean significant – it will only bring more violence, more heartbreak, and more despair.”

If the PA does collapse, Israel would have to deploy large numbers of security forces to the West Bank and take over services such as schools, hospitals and policing, all of which would only increase the likelihood of violence.

Given the weakness of the Palestinian leadership and the intransigence of the Israeli government, there is no easy way out of the current situation. Kerry, however, reached for a familiar potential solution to at least some of the problems, saying that “strengthening the Palestinian economy will enhance security for Israelis and Palestinians alike”.

International actors have been trying to turn the Palestinian economy around for years without success. Sami Abdel-Shafi, an academy associate at London-based think-tank Chatham House, points out that the biggest donor, the EU, has had little to show for its beneficence. 

“For more than 20 years, the EU has spent more than €6bn to try to assist Palestinians with their economic development and with their other needs, but the results on the ground don’t really testify to that very much,” he says.

He describes the notion of a viable Palestinian economy as a “myth” these days. “In many publications out there, the GDP of Gaza in the past few years is listed as being in the modest billions of dollars per year. I live in Gaza and I can tell you that there isn’t productivity that amounts to even $1m per year,” Abdel-Shafi says.

It is hard to see the economy improving without a comprehensive political situation. In the meantime, the value of lost opportunities continue to mount. A study earlier this year by the Rand Corporation, a US think-tank, suggested that a peaceful two-state solution would lead to a $173bn boost to the economies of Israel and Palestine over 10 years, with a $123bn windfall for the Israelis and a $50bn boost for the Palestinians.

By contrast, a full-scale violent uprising would lead to their economies losing $296bn over the decade, with $250bn lost from the Israeli economy and $46bn from the Palestinian.

The potential benefits and costs are greater in absolute terms for the Israelis, but in proportional terms it is the Palestinians who have the most at stake, as their economy is just a fraction of the size of Israel’s. “The Palestinians have a much greater incentive to move from the present situation than the Israelis,” says Ross Anthony, a co-author of the study.

Certainly, the Palestinian territories could do with an economic lift. Overall unemployment is running at about 27 per cent, according to the Washington-based IMF, but some observers say it is as high as 67 per cent among young Palestinians in Gaza.

The IMF is predicting GDP growth this year of about 2.9 per cent for the West Bank and Gaza, which it says represents stagnation given the rate of population growth.

The problem is that the economic and the political spheres cannot be easily separated and it is political problems that are causing the Palestinian economy to under-perform so badly. Abdel-Shafi says donors should try to decouple Palestinian economic development from the political process.

“If the Palestinians do achieve a sovereign state, they will definitely need a viable economy to support their state,” he says. “If they don’t achieve sovereignty soon, they are still entitled to a dignified life.”

However, separating the two strands is a hard and potentially impossible task to achieve. In the meantime, the situation is becoming ever more fragile. Unless some progress is made soon, the prospects look bleak, something that was evident in the warning Kerry issued to Israel when he said it needs to do more to assist the Palestinian President Mahmoud Abbas, also known as Abu Mazen.

“How is Israel advantaged to have chaos in the West Bank or to have another war with Gaza?” he asked the audience in Washington. “Strengthening Abu Mazen is now and has been for years – and it hasn’t happened sufficiently for years – critical, because if you don’t strength the one person who is most committed to non-violence you send an incredibly negative message to all the rest of the people who are frustrated.”