War has brought ‘complete collapse’ of Gaza’s economy

Scale of destruction to economic infrastructure is up to five times higher than in previous conflict with Israel, expert says

Smoke rises following an Israeli air strike in the Gaza Strip, as seen from southern Israel. AP

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Gaza’s economy has completely collapsed as Israel continues to bombard the besieged enclave, with little employment and the supply chain shut, a senior executive of a Palestine-based non-profit organisation said.

“The actual employment is negligible, people who may be still receiving wages from the government … public employment, there's a certain amount,” Raja Khalidi, director general of the Palestine Economic Policy Research Institute, told The National in an interview.

"People are working but it's a very small part of the public service sector."

Most of the bakeries in the besieged enclave of 2.4 million people are closed and the whole supply chain has fallen apart.

“Even the simplest productive activities like bakeries are barely getting by. The whole supply value chain is closed ... supermarkets have run out of stock. How can there be an economy?”

Israel has been shelling Gaza since the war began on October 7, with at least 13,300 people killed as of Tuesday, according to official data from the strip.

The economic outlook for Gaza was grim even before the war broke out and the latest conflict is expected to exacerbate the situation.

The Palestinian economy was expected to continue operating well below its potential and growth was projected to hover at about 3 per cent in 2023, according to a World Bank report published in September, before the start of the war.

Given population growth trends, income per capita is also expected to stagnate, dragging down living standards, the Washington-based lender said at the time.

“As long as the hostilities continue, for sure, the economic destruction continues, but ... no less importantly, the productive capacity destruction, it goes on,” Mr Khalidi said.

“Productive capacity is not just having a factory and a workforce. It's a whole chain and it's a matter of links to suppliers and marketing and having people.”

If there’s a supermarket, “you need to have a neighbourhood for people to buy your stuff … the type of destruction that has been wrought [by the war] is unheard of", Mr Khalidi said.

As of October 16, the war had completely destroyed more than 2,185 buildings and 8,840 housing units, in addition to the partial destruction of more than 89,000 housing units, according to the institute’s previous report last month.

“Forty per cent of residential buildings are destroyed and will take a long time to rebuild,” Mr Khalidi said.

Rebuilding infrastructure associated with sewage, telecoms and electricity will take time and require huge investment, he added.

“The time they will take, the money that it will cost to replace, nobody can even calculate it. The scale of disruption and destruction to the economic infrastructure is at least four to five times more when compared to the previous wars with Israel."

Israel imposed a land, sea and air blockade on the Gaza Strip in 2007 that severely hampered the movement of people and goods and hit the enclave's economy hard.

Even though Palestinian gross domestic product grew by 3.9 per cent last year, per capita real GDP was still 8.6 per cent below its 2019 pre-coronavirus level.

In Gaza, real GDP per capita was 11.7 per cent below the 2019 level and close to its lowest level since 1994, according to UN data.

“Israeli air strikes have caused extensive and severe damage to Gaza’s infrastructure that pales in comparison to previous rounds of conflict, while its blockade has severely reduced the availability of food, fuel, electricity, water and medication,” said Pat Thaker, editorial director for the Middle East and Africa at the Economist Intelligence Unit.

“Gaza’s economy will take years to recover from the damage already – and that has yet to be – done.”