Gaza’s place in the West Bank “miracle”

Last year — in stories from the Wall Street Journal to the New York Times — we saw the emergence of a narrative that Palestinians in the West Bank are living through an economic miracle. One very important missing piece of this puzzling story is Gaza and its desperate state of affairs. While this may seem like a small story in the context of much larger conflict, the economic well-being of West Bank residents has taken on increasing importance as leaders on both sides of the Israeli-Palestinian divide are banking on economic growth as a route to a viable two-state solution, while simultaneously ignoring the situation in Gaza. If there is one thing the Palestinians certainly aren’t buying, it’s this "West Bank economic miracle" narrative.

Last month, I visited Israel and the West Bank to get a better understanding of the economic situation there in light of this growing narrative on peace and state-building through economic growth. As I met with entrepreneurs, business consultants, academics, American development professionals and Palestinian Authority officials, I found deep skepticism about the widely touted growth of the West Bank economy. Rather than actual development, they spoke of growth in the West Bank as "Ramallah-centric" and fueled mostly by international donor aid, which funds increased employment (in the PA, municipal governments and development projects).

It is true that the West Bank’s GDP registered as one of the top 10 growth rates in the world for 2009 (seven percent) during one of the worst global recessions in history. Even so, Palestinians and Americans alike noted that any small gains made in calculating the GDP statistics of the West Bank are almost certainly offset by the economic pain of Gaza’s closure. The Gaza Strip is a critical component of the Palestinian economy; without it, the West Bank loses much of its domestic market and can’t benefit from cheaper Gaza imports. Unless and until Israel and Egypt can determine a way to relax import and export controls on the Gaza Strip and increase trade between it and the West Bank, Israeli Prime Minister Netanyahu’s vision of economic peace and Palestinian Prime Minister Salam Fayyad’s plan for declaring a Palestinian state in 2011 are both dead on arrival.

Israel sees the Hamas-controlled Gaza Strip as a hostile entity along its border and has little interest in relaxing restrictions on the movement of goods into and out of Gaza. Egypt doesn’t want to open up its border along Gaza’s southern tip for fear of having Gaza become its sole responsibility. This Israeli and Egyptian blockade has produced, as Rex Brynen termed it, "a tragically peculiar economy" within the Gaza Strip. The effects of this closed economy, though, reverberate well beyond Gaza’s borders.

Gaza is home to more than 1.5 million Palestinians. The West Bank has about 2.5 million residents, and there are at least another 1.5 million Arabs living in Israel, many with close family or commercial ties to the West Bank. Even if you add the Arabs living in Israel to the total market (as they are in some ways part of the Palestinian economy since they can access the West Bank and are to spend money there), then Gaza still represents 28 percent of the domestic Palestinian market. With the closure of Gaza and more stringent restrictions today on who can cross into the West Bank, businesses there are operating with a significantly diminished domestic market size. Though many Palestinian businesses conduct business within the Israeli market, increased security procedures at checkpoints along the Green Line have made shipping prohibitively expensive for all but the largest Palestinian firms.

In addition to losing Gaza as an export market for its goods, the West Bank is now increasingly reliant on more expensive Israeli produce and other basic products, some of which used to come more cheaply from Gaza. Economic linkages between Israelis and Palestinians should be encouraged, but the two economies are nowhere near on par with each other, making trade somewhat unbalanced. Losing cheap imports from Gaza won’t decimate the West Bank economically, but it does add to the pain.

Even if the West Bank is able to produce enough growth to statistically overcome these trade challenges posed by Gaza’s closure, it’s going to be hard to convince most Palestinians that their situation has improved unless they see tangible improvements in Gaza, too. West Bank Palestinians, regardless of their political stripes, are deeply concerned about Gaza’s future and think of the health of their own in economy in terms of the combined situation in the West Bank and Gaza Strip.

It is within Israel’s and Egypt’s interests to relax some of the trade flows into Gaza. As it stands now, goods coming into Gaza are smuggled through tunnels, many of which are either directly run by Hamas or are "taxed" by Hamas. Allowing the West Bank’s goods into Gaza could funnel some this tunnel-based money away from Hamas and instead help bolster the West Bank’s economy. This wouldn’t require Israel to come to any agreements with Hamas; they could simply allow more goods in from the West Bank and rely on well-established security protocols at the checkpoints to safeguard against weapons or other dangerous materials from entering the Gaza Strip.

It’s tempting for policy-makers and pundits in Washington, Israel, and even within the PA to dream of a situation in which economic development in the West Bank could lead to a peaceful resolution of conflict and the birth of a Palestinian state, while the long-term issues in Gaza are put off for another day. It certainly seems easy compared with the extremely complex prospect of settling the conflict between Israel and the Hamas-controlled Gaza Strip, which also requires Egyptian cooperation. Unfortunately, this is as unlikely as it is impractical. Focusing on economic growth in the West Bank, while ignoring the key role of Gaza in the Palestinian economy, is a path likely to end in failure for American, Israeli, and Palestinian efforts at peace.

Kyle Spector is a policy advisor in the National Security Program at Third Way.