Preventing economic collapse in Gaza, realizing the potential of the Jordan Valley

To an economist, working on the West Bank and Gaza can be exceptionally frustrating. No matter how good the analysis, “politics” blocks the policy implications of that analysis. Meanwhile, the economy of Gaza continues to deteriorate (Figure 1). The unemployment rate, at over 40 percent, is one of the highest in the world. The lack of electricity, water, and sanitation risks a humanitarian crisis in a few years. The West Bank, while growing slowly, is full of unrealized potential. For instance, lifting the restrictions on access and movement to Area C, as stipulated in the 1995 Israeli-Palestinian Agreement, would increase Palestinian GDP by 23 percent.

Figure 1: GDP per Capita in Gaza in 2004 U.S. dollars, 1994-2015

To emerge from this conundrum, the Aix Group, a collection of Israeli and Palestinian economists (with some encouragement from my office), decided to address the constraint of politics directly. They noted that this constraint has two meanings. One is disagreement and the attendant lack of progress over negotiation of a permanent status agreement of the Palestinian Territories, the so-called “Two-State Solution.” People were reluctant to make a decision today lest it bias the configuration of the permanent status agreement. The second is an increase in the security risks to Israel because of policy and institutional changes in the West Bank and Gaza. The Aix Group asked the question: Are there measures that can be undertaken in the short term to improve the economy of Gaza and utilize the potential of the Jordan Valley (a major part of Area C) that are (i) independent of the negotiations for a permanent status agreement; and (ii) do not increase the security risk to Israel? 

The answer, as documented in a remarkable report, is “yes.”  They show that:

• In Gaza, increasing access to electricity by laying a new 161 KV line, constructing a natural gas pipeline, and repairing and upgrading the electricity grid could, in the short-run, alleviate the acute electricity shortage. Small-scale desalination plants, like the one UNICEF built in Khan Younes, and expansion of piping infrastructure could improve water access. Increasing coverage of sewage systems from 15 to 25 localities and replacing three treatment plants with higher capacity ones, along with the improved access to electricity, would address most of the sanitation problem. All of these measures can be implemented in the short-run without compromising the permanent status agreement. Furthermore, they do not constitute a security risk since the government of Israel has already agreed to them.

The other major area for Gaza is the restrictions on trade and movement of people. Relaxing these will have a major impact on the Gazan economy. Recognizing that implementing these measures will take time, the report points to one particular policy, the Dual-Use list, which could be addressed immediately. This policy restricts imports of goods such as construction materials into Gaza to prevent security threats, like the building of tunnels or rockets. However, the United Nations has developed techniques for tracking these materials up to the plant level, so that the Dual List could be reduced sharply. 

• In the Jordan Valley, the main issue is agriculture. There are around 54,000 Palestinians and 9,000 Israeli settlers in the valley. While both Palestinians and the settlers cultivate the land, about 40,000 dunams remain uncultivated. Moreover, the settlements consume about 10 times as much water per capita as do the Palestinians in the area. If a Development Agency for the Jordan Valley were established, it could first allocate the unused land for agricultural development and then ensure adequate supply of water for human and agricultural use. While some of the unused land is declared as “military zones,” “nature reserves,” or “state lands,” these classifications can be revisited. For instance, much of the state lands remain unexploited with no clear justification. Better supply and demand management, including rehabilitation of the existing water infrastructure and adoption of new technologies for desalinating water, can improve water access for the Palestinians.

As to security threats, the main concern with the Jordan Valley is the prevention of infiltration of terrorists and weapons from across the Jordan River. It is possible to have a special security area along the river that would accomplish this goal. Such an area would be compatible with allocating areas of the Jordan Valley for agricultural development by Palestinians. 

The report contains many more recommendations but these represent possible short-run actions to improve both the Gazan and Jordan Valley economies. Last week, we presented the report to a group of development partners, to the Israeli public at the Truman Institute for the Advancement of Peace in Jerusalem, and to the Palestinian public at the Palestinian Economic Policy Research Institute. (The Israeli and Palestinian press covered the events.) While the comments were generally favorable, they also reflected skepticism that even this analysis and these recommendations will bump against the constraint of politics. That may be true, but the Aix Group report has succeeded in removing two possible objections to policies that could improve the West Bank and Gaza economies: namely, that they prejudge the permanent status agreement and that they threaten Israeli security. Anybody who wants to block these recommendations will have to come up with a different set of objections.