Sealed-off Gaza’s economy barely ticking

Defying southern Gaza’s dusty soil, sturdy little sprouts stand in neat rows before Zakary Hejazi.

The buds are a gamble: $162,000 worth of carnations. In the coming months, Hejazi hopes to export them to Europe.

But politics could make this harvest, and his business, wither.

“All the farmers are having nightmares,” he said on a recent afternoon. “If the border closure continues, it’ll be the death of the people -- not just the flowers.”

Since the Islamic militant organization Hamas took control of the Gaza Strip in mid-June, Israel has in effect sealed off the territory, closing border crossings to the import and export of most produce and other goods.

As a result, the already weak and aid-dependent Gaza economy is on the verge of collapse. Hundreds of factories have closed and tens of thousands of people are out of work.

On Monday, President Bush said the U.S. was giving $190 million in aid to the Palestinians. But the money is intended for Palestinian Authority President Mahmoud Abbas’ government in the West Bank.

Israel, the United States and some European countries are trying to undermine Hamas, which they consider a terrorist group, by dividing the Palestinians and isolating Gaza.

But residents, business leaders and officials in Gaza said in interviews that they think Israel, not Hamas, is to blame for the economic crisis.

“People don’t have anything against Hamas,” said Mohammed Talabani, owner of a Gaza cookie factory. “It’s Israel that is creating the crisis.”

Talabani normally exports $750,000 worth of biscuits, wafers and ice cream to the West Bank every month. But there are no more exports, and the Al Awda factory is running out of imported cocoa, sugar and ice cream sticks.

Talabani has cut production by two-thirds, sending home hundreds of workers.

In the industrial sector alone, as many as 35,000 workers have been laid off, with losses amounting to $20 million, said Ali Hayak, the director of the Palestinian Federation of Industry. The problems add to Gaza’s already considerable economic woes.

Official figures put unemployment at about 50%, but unemployment in effect is closer to 85% because many workers receive salaries that are so meager as to be meaningless, said Omar Shaban, a leading economist who blames both Israeli and Palestinian politicians.

Almost two-thirds of Gaza’s budget comes from outside aid, he said.

“We cannot work without coordinating with the occupation,” Shaban said. “We have to be logical. We have a responsibility for 1.5 million people in Gaza.”

As many as 1.1 million of them are dependent on international aid, said John Ging, director of the United Nations Relief and Works Agency in Gaza. With the border all but closed, the last functioning part of the economy is collapsing, and the impending humanitarian crisis could overwhelm U.N. resources in Gaza, he said.

“If people are hungry, they will go to Hamas for help and aid,” Hayak said. “But if the borders are open, people will be busy in their business, taking care of themselves.”

Hejazi, for one, has been unable to get fertilizer to his hillside nursery. He is hoping his carnations might still make it through the sweltering summer and that, come fall harvest, the border will be open again.

Other farmers have already been forced to sell their produce for a pittance. Vegetables destined for Israeli markets instead have flooded the 140-square-mile Gaza Strip. One dollar now buys 26 pounds of tomatoes.

Palestinian textile producers, whose summer clothes may not make it to Israeli shops before the season is over, stand to lose as much as $5 million, according to observers and trade groups in Israel and Gaza.

Meanwhile, prices of imported materials have soared. Supplies of concrete are running out, and the construction sector has ground to a halt, delaying $93 million worth of United Nations projects -- among them schools, refugee camp repairs and sanitation networks, Ging said.

Like Talabani, many Palestinian importers are forced to pay thousands of dollars in storage fees for goods stuck at the Israeli port of Ashdod, just north of Gaza City, and elsewhere. During the first two weeks of closure alone, Palestinian importers racked up $1.5 million in such charges, according to a report by Gisha, an Israeli-based advocacy group that promotes freedom of movement for Palestinians.

Hundreds of Palestinian traders and merchants who normally commute to Israel daily for business are also trapped in Gaza because of the border closures. And thousands of other Palestinians remain trapped on the Egyptian side of the Rafah border crossing.

When Hamas took control of Gaza last month, Palestinian border guards affiliated with the rival Fatah party fled their posts, leaving the crossings staffed only on the Israeli side.

Through intermediaries, Hamas officials have sought to resolve the situation with the Israelis, said Alaa Araj, an economics advisor to Ismail Haniyeh, the dismissed Palestinian Authority prime minister.

Abbas, who is based in the West Bank, fired Haniyeh and his government after the fighting in Gaza last month. But Haniyeh rejected the termination of his administration and has continued to govern.

Araj said border guards affiliated with Fatah were welcome to come back to work as long as they were not corrupt.

But Israeli officials say they will not negotiate with groups they consider terrorists or that do not recognize the state of Israel.

“As long as Hamas doesn’t rethink its position, things will stay the way they are,” said Shlomo Dror, an Israeli government spokesman, highlighting that the Israelis have allowed the passage of tons of food, medicine and other aid.

“The Palestinians in Gaza can survive without the opening of the crossings,” he said. “True, there are difficulties and the situation isn’t good, but they’re not collapsing tomorrow morning. There will not be starvation in Gaza.”

But Ging of the United Nations said that, while important, food handouts are not a solution.

“It’s not just about keeping people alive. But alive to do what?”

Israel pulled out of Gaza two years ago and has since intermittently shut down the border crossings, sometimes for weeks on end. However, the current stranglehold on commercial goods and material is unprecedented.

“Every time there is a closure, we say, ‘This is the worst,’ ” Shaban said. “But this is the worst of the worst.”

For their part, Israeli fruit growers cannot sell their produce in Gaza and are losing millions of dollars in revenue.

Israeli officials recently said Hamas had banned Israeli fruit from entering Gaza, but Hamas officials denied this, and it is unclear how fruit would be able to pass the closed border crossings.

Shaban said opening the border was the most pressing short-term concern but added that Palestinian politicians needed to develop the economy, paying special attention to successful sectors, such as flower growing.

In Hejazi’s business, trade trumps politics.

He imports the seeds from Israel. He grows the flowers in Rafah, not far from demolished Jewish settlements. And he monitors prices online before selling his crop through the Dutch flower bourse in Europe. Carnations yearly bring $20 million to Gaza, create jobs and, with that, hope for the future.

“We need food, yes,” Shaban said. “But we also need flowers.”

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roug@latimes.com

Special correspondent Hamada Abu Qamar contributed to this report.