Israel is the major hurdle for Palestine's economy

Palestinian economic development is subservient to the political goal of keeping the broken down peace process on life support, argues Alan Philps

Palestinians are suffering economiclly under the weight of Israel's occupation. Hazem Bader / AFP Photo

Over the past 20 years the European tax payer has given the Palestinians almost $6bn in the form of aid. The purpose is to promote economic development and create the institutions of an independent Palestinian state, the long-term goal of the peace process.

Now that the peace process has run into the sand and there is no chance of a Palestinian state in the foreseeable future, it is time to ask why all that money has been spent and to whose benefit.

For EU officials, the creation of the Palestinian Authority (PA) was a great success.

It has institutions and ministries and produces statistics marking the rise and fall of Palestinian gross domestic product, inflation and unemployment.

But all this is a charade to hide the real story, which is the failure of Palestinians to escape from enduring Israeli economic control. Far from developing Palestine, European aid money is used to meet humanitarian needs and pay the salaries of PA employees.

New research by Sami Abdel-Shafi, a Palestinian entrepreneur and business consultant, dismisses the Palestinian economy as a “myth”. Rather than creating any value, the economy amounts to no more than some cyclical commercial activity.

Its rise and fall does not reflect supply and demand, but Israeli political decisions such as the imposition of import and export restrictions or the punitive withholding of tax receipts. The amount of aid money used to fund real development has declined over the years to become insignificant, as the need to keep the struggling PA afloat has trumped any economic goals. Nowhere else is so much aid money distributed to meet current needs, with such scant consideration of measurable development goals.

The reason is simple: Palestinian economic development is subservient to the political goal of keeping the broken down peace process on life support. At one level, this is hardly surprising: politics is all in the Israeli-Palestinian dispute.

This has led to a fatalistic attitude among EU officials. Mr Abdel-Shafi notes in his report for the Chatham House think tank, “Realigning EU Policy in Palestine”, that many European officials acknowledge privately that the current aid model has failed, but cannot see how to fix it.

A different policy would require the EU to take a more challenging position towards Israel, something that it finds politically difficult. But the current model cannot continue forever. If there is no chance of a Palestinian state, then why should foreign taxpayers keep the Palestinians from starving? Those costs should logically accrue to Israel, still occupying power despite the limited autonomy it has granted to the PA.

The iniquity of the current situation, which foreign aid money serves to perpetuate, is demonstrated by the fact that most of the land of the West Bank is still under Israeli military and civilian control, where Palestinian development is practically prohibited.

This is the so-called Area C – 60 per cent of the land of the West Bank – which is retained by Israel for Jewish settlements and their associated roads, infrastructure and garrisons, as well as areas marked as required for Israeli security.

This is the contiguous land – where it is possible to move freely – unlike the Palestinian-controlled areas, which are little islands that can be cut off at will by the Israeli army.

According to a World Bank study, lifting Israeli restrictions on development in Area C would boost the Palestinian economy by $3.4 billion a year – more than the total of foreign aid received annually.

Mr Abdel-Shafi believes that the current model can never develop the economy. Only by decoupling economic development from politics is there any chance of a dignified life for the Palestinians. They are a capable and qualified people who can run their own economy, but not when the dice are stacked against them.

The principle should be empowering the private sector. The EU needs to use its financial clout not to avert hunger but to encourage the Israelis to open up the way for Palestinian development. This would require the teasing out of Israeli policies. Those based on legitimate security concerns may stay but those that are a form of collective punishment have to be challenged.

Palestinians have heard western promises to ease Israeli restrictions on their lives in the past and they will not believe it until they see real change. This is why the plan proposed by Tony Blair, the former Middle East Quartet envoy, of promoting peace through economic development has failed so dismally. There is no such thing as “economic peace”.

In Mr Abdel-Shafi’s view economic development is not a substitute for the Palestinians gaining their political rights. But if there is no prospect of a Palestinian state, that should not preclude the Palestinians from creating a viable economy rather than living off handouts.

There are many obstacles in the way of unleashing the private sector energies of the Palestinians.

The first is that the EU is a weak vessel, politically divided and easily dismissed in Israeli political discourse as a collection of 1930s-style anti-Semites. But that should not deter a change of policy.

While Israeli politicians may want the Palestinians to be hidden away forever behind high walls, security chiefs realise that this is not a policy but a day dream. One day there must be an accommodation.

The second obstacle is that raising the standard of living has never destroyed Palestinian national aspirations, and it will not in the future. Palestinian incomes rose after Israel conquered the West Bank and Gaza Strip in 1967, and after the signing of the Oslo accords in 1993. But each time a new generation rose to oppose the fundamental injustice of Israeli control.

Fattening Palestinian pay packets is not a panacea. But it is a far better goal than wasting billions of euros in aid to prop up a status quo, which disempowers the Palestinians and ultimately serves Israel's interest.

Alan Philps is a commentator on global affairs.

On Twitter: @aphilps