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Maher Masri

Coping with a crippled economy

During the recent Maltese fact finding delegation’s visit to Palestine, the Minister of Economy and Trade, Maher Masri, gave a detailed explanation of the financial difficulties that the country is facing due to the current conflict in the region. MIRIAM DUNN, who was a member of the delegation, reports.

Photos by Paul Blandford


What are the major economic problems that Palestine is currently facing?

One of the greatest difficulties that we have stems from the fact that the ports in Palestine are divided from each other.
At the beginning of October, the Israelis applied a strict siege on our territory, barring the entry of any Palestinians to Israel and the movement of any commodities between the two countries.
They have also blocked all our imports which come from their ports. The problem is further compounded when one considers that Israel is also in control of our land routes with both Egypt and Jordan.
As this indicates, it is possible for Israel to block our territory very effectively because of the way in which Gaza and the West Bank are split.
The Israelis have now blocked all our imports for at least five weeks, with the result that approximately 1,200 container loads of goods, ranging from foodstuffs and medical supplies to building materials, have accumulated at Ashdot Port. There are also some 1,500 - 2,000 new and used cars stuck there, which are being cleared at the very slow rate of about four per day.
On the land routes, none of our goods, except foodstuffs and medicines, have been cleared. All our construction material is stranded there, the most important of which is cement, which is stuck on the border with Jordan, from whom we import a great deal of building materials.
Israel has also reverted to the back-to-back system for transportation, which is hindering us greatly.
Prior to October, all the goods we imported from Ashdot were transported via Palestinian trucks, which left Gaza in a convoy, picked up our goods and then returned to base.
Now this has been stopped and instead, Israeli trucks pick up our goods from Ashdot, unload them at the entrance of Gaza and then they have to be reloaded onto Palestinian trucks.
This has had the effect of increasing the cost of transportation by 50 percent. Our goods are also being checked very thoroughly, with the result that some items have been damaged, while we also have to pay for security inspections. Prior to October, our importers were paying about $125 for inspections, whereas they are now paying $325.
Our importers have also had to incur huge rises in insurance costs, which have increased four-fold, so in general, the costs are rising astronomically.

What have been the effects of this stranglehold on business at a sectoral level?

On the sectoral level, the tourism sector has been hit hardest.
Since this "intifada" [uprising] began, most of our hotels have lost all their bookings.
We have to remember that Palestine is a region that relies on tourism and this is particularly worrying since October and November are normally our busiest months.
Many hotels in the popular regions, such as Jerusalem and Bethlehem, have closed down and those that are still operating have little more than a three-four percent occupancy.
Obviously all the related sectors have also suffered, such as restaurants, bars, shops and tourism transport.
The industrial sector has also suffered, going into a sharp decline, mainly because the cities and villages have been totally cut off.
At the same time, we are witnessing people tightening their belts, as is expected in a time of crisis, so there is now a downward drop in demand, as well as in supply.
In the agricultural sector, the closures around our towns and villages mean that farmers cannot get to their farms.
The Israeli settlers have also caused a lot of damage, by cutting the olive trees during the height of the season and damaging our fields. Some of our people have been fired at and even killed while trying to pick the olives, with the result that we have lost a lot of the crop.
On the plus side, some of our agriculture has been exported to Israel, but only because the Israelis were obliged to buy from us because they had insufficient produce for themselves.
Because of this, they made a deal and agreed to take our vegetables, providing we bought their fruit. This was the only way our agricultural products were marketed, not in their entirety, and on their terms. But it meant our agriculture sector did better than some sectors.
Our labour force has suffered terribly. Some 120,000 people who were working in Israel lost their jobs when this "intifada" started, because the borders were closed off. This marks about one quarter of our entire workforce.
With the slackening of economic activity in our territories, some of the workers here also had to be laid off, so the problem of unemployment was compounded.
Our losses vary from day to day, but they are in the millions.

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Obviously, investment in Palestine has suffered greatly. How are you tackling this problem?


Our investment losses can’t be quantified at this stage because much of the impact from this crisis will have a long-lasting effect that cannot yet be gauged.
We are well aware that we are unlikely to get any new investment in Palestine for quite a long time, so that’s another loss that can’t yet be quantified.
Our figures show that 1996/97 were bad years, since economic growth was at a zero or negative rate.
In 1998 we stabilised at about three percent and then, in 1999, our GDP grew at a rate of six percent, while GNP increased at seven percent.
This year, we were hoping to reach the same targets, but with the current crisis, we now know we have lost the last quarter. Once the last three months of the year register a negative rate, we estimate that the whole year will give us something in the region of three - 3.5 percent.
Next year is sure to be problematic for us economically, since the latest drop in economic activity has meant that the government’s revenues have plummeted dramatically.
On top of this, we are not receiving indirect taxes from the Israelis - that they collect on our behalf.
We have a clearing system with Israel for goods traded between the two countries, through which Israel collects indirect tax and money related to customs clearance on our behalf at the ports and then transfers it back to us. Last month, Israel transferred only 15 percent of what we should have received – an amount of $7.5 million from what should have been $50 million.
The bottom line is that Israel is putting more and more pressure on us economically and fiscally, using the same tactics it used three years ago, but on a much more severe scale.
They are trying to impose extreme pressure on us to yield or accept whatever they have in their minds on a political level.

How are you trying to deal with the economic crisis in your country?

As a government, our first step was to take stock of the impact of Israel’s actions on our economy. Now we have come out with a working agenda.
One of our main responsibilities is to try to clear all our goods from the Israeli ports as soon as possible and help our private sector to get their imports sorted out.
The Arab countries have decided they will allocate about $800 million to help Palestine’s economy get back on its feet, and we are asking that $150 million of that will be set aside for a revolving fund to be given as loans to the private sector.
We have also requested an allocation of a separate fund from the Arab countries which will act as an export guarantee. This will support our private sector when applying for loans or overdraft facilities from our banking sector here for export operations.
At present, the risk is extremely high for them. But the setting up of an export guarantee fund will mean the banking sector will be more willing to come in because the risk factor will drop dramatically.
We have also agreed to try to provide an emergency job creation programme to help the workers that lost their jobs in the construction, agricultural and infrastructure sector.
This will be of a temporary nature, probably about six months, since it is very costly. But we can at least utilise some people for immediate work that has to be done, such as emergency work in the roads and agriculture sectors.
We have also tried to see how we can alleviate the pressure on the private sector, by liaising between the Central Bank regarding the scheduled loans given to the private sector. I stress that it has to be the private sector taking the initiative as we try to move forward – the government can only act as a catalyst and pillar of support.
On the investment side, we have started contacting international investment corporations and institutions to generate interest as part of a long-term vision.
The Arab Institute for Investment could be utilised here in the future. But we are well aware that at present, no one in his right mind would consider investing here.
We have also contacted some Arab and European countries with whom we have protocols of co-operation.
We also decided to use this dead period as a chance to retrain some of our workers, and, in line with this, we are finding out about sending some people employed in the tourism sector abroad.
At present, this is just a plan, but we will put things into action once some of the host countries give us an OK.

Have you tried to negotiate with Israel to strengthen your position to trade on an international level?

A few weeks ago, Israel started talking about economic separation, but the suggestions put forward appeared very obscure.
The Israeli spokesmen decided that separation would include a "no through traffic" policy. Palestinian trucks would not be allowed to enter Israel, and vice versa, with goods having to be unloaded and reloaded at checkpoints.
This is not an acceptable solution to us, since we would want economic separation to mean that we would have our own trade policy and regime, like other countries.
At this stage we have no access to the rest of the world and no sovereignty over any of our border points with Egypt or Jordan.
We are happy to discuss separation, but then they have to give us the chance to communicate and co-ordinate with other countries. And we cannot do this when we are not in control of our land or air routes.
Our trade relations with other countries have been affected by the latest crisis.
For example, Jordan regularly exports cement to us, but this was stopped in October.
I brought the matter up in a meeting with the Jordanian minister recently, pointing out to him that he had, in the past, begged us to buy his country’s cement.
His reply was to apologise and say that Israel wouldn’t allow them to export to us. He admitted, quite openly, that Israel had said it was a political decision.
Up until 1993, Israeli businessmen were trading on our behalf with the rest of the world, buying goods and selling them here.
Our own traders had been given no chance to expose their goods to the rest of the world. But when the Palestinian Authority was set up, we began encouraging businesses to import to us directly, thereby eliminating the Israeli middleman.
We encouraged our people to set up direct agencies, but the Israelis were not happy with this and complained that it was a violation of the Paris protocol.
We argued that the protocol made it clear that each country had the right to its own economic regulations and its rules.
But our dependence on Israel has still not diminished and this is the fundamental problem.
Our imports have risen and our exports have not increased in the same proportion because of the flawed structure of our economy. Until this is rectified, we can never really move forward.



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