The war on Gaza has dealt a major blow to the Palestinian private sector with production facing its most significant decline along with unprecedented levels of unemployment expected this year, a report has shown.
Between October 2023 and January 2024, about half of the private sector establishments in Palestinian territories – 29 per cent in the occupied West Bank and 100 per cent in the Gaza Strip – experienced either complete cessation or reduced production, the joint report by the International Labour Organisation and Palestinian Central Bureau of Statistics said on Friday.
Overall, Gaza and the West Bank incurred an estimated loss of $2.3 billion in private sector production value during the first four months of the war, or about $19 million a day, excluding losses in properties and fixed assets, the report added.
“The private sector production witnessed its most significant decline in construction, followed by industry and services and other branches,” the report said.
“The Gaza Strip experienced notably more severe deterioration compared to the West Bank, with the construction and industry in the strip nearly collapsing,” the report said.
The extensive damage caused by the Israel-Gaza conflict, now in its ninth month, and the continuing destruction of infrastructure in the narrow strip of land means it is likely to take several years for Gaza and the broader Palestinian economy to regain stability and recover.
The private sector, which makes up 66 per cent of total employment in the Palestinian territories, consists mainly of small to medium family-owned enterprises that are highly reliant on Israel for either inputs or as a market.
“Looking at the current status between the Palestinian Authority and Israel, there are a lot of worries that blockades and large-scale restrictions of movement will be out for months,” Cyril Widdershoven, an analyst at Hilltower Resource Advisors, told The National.
“Without any direct access to Israel's economy or infrastructure, the future looks very bleak.”
Economic forecast
Based on the assumption that the war will continue until the end of August 2024, the gross domestic product in Palestinian territories is projected to decline by 16.1 per cent this year, compared with 2023, alongside an 18 per cent drop in per capita income, the ILO-PCBS report said.
If the war continues for three more months, the unemployment rate in the territories is expected to rise substantially, reaching 47.1 per cent this year, the report added.
Total unemployment is expected to hit 668,000 in 2024, an increase of 222,000 from 2023.
“The projected unemployment rates … show that the unemployment rate for the year 2024 under the new scenario is unprecedented, exceeding by far the unemployment rate registered in the Palestinian territories at the height of the Second Intifada in 2002,” the report said.
In a recent report, the World Bank also highlighted the level of unemployment in Palestine amid the continuing war.
The multilateral lender said an estimated 200,000 jobs have been lost in the Gaza Strip, while 144,000 people are no longer employed in the occupied West Bank as a result of the escalating violence.
About 148,000 cross-border commuters from the West Bank were also denied access to the Israeli labour market due to the continuing war, pushing unemployment levels higher in the Palestinian territory, it added.
“In Gaza, the whole economy has been decimated. I don't think there's anything left standing. The Gazan economy will have to be recreated from scratch … rebuilt from the ground up literally,” Raja Khalidi, director general of the Ramallah-based Palestine Economic Policy Research Institute, told The National in an interview.
“The physical devastation, which just makes it impossible for businesses to reopen, especially the productive sector, or the services and trade … stores and supermarkets and simple services. ”
The occupied West Bank’s economy is “grinding to halt”, Mr Khalidi said, as he noted that its economy is powered by two sources of income – government salaries and Palestine workers earning in Israel.
“About 40 per cent of West Bank’s income was coming from those two sources. So, those two sources no longer exist and what can the rest of the 60 per cent of the economy do?”
Business impact
Surveys conducted jointly by the ILO and Palestinian industry bodies revealed that 98.8 per cent of enterprises in the West Bank acknowledged that they had been negatively affected by the conflict.
The businesses have encountered myriad challenges, ranging from reduced monthly sales and the loss of customers or suppliers, to decreased production capacity, supply chain disruptions and heightened transportation costs, the survey found.
“To mitigate the adverse impacts of the war, businesses implemented different measures, including reducing workforce size, hours of work and wages,” the report said.
Small and medium enterprises involved in food and trade will be under pressure from “all sides”, Mr Widdershoven said.
Future economy
The ILO-PCBS report said that Palestine’s economy needs immediate and long-term support, including financial assistance for reconstruction, business recovery support, social protection measures and income-generation initiatives.
Structural reforms are essential to reduce dependence on external factors, foster a diversified economy and ensure fair and decent wages, the report added.
A “Marshall Plan” supported by Arab countries, the International Monetary Fund and the World Bank could pave the way for Palestine’s battered economy, Mr Widdershoven said.
“Maybe something could even come out of it that is much better [such as] an emerging future-proof economy, based on technology, IT, artificial intelligence or other sectors,” he said.
However, even Arab countries are not willing to take the risk of putting in cash without guarantees of a positive change, the analyst added.
In February, the UN Conference on Trade and Development estimated that tens of billions of dollars would be needed to rebuild Gaza when Israel's war against Hamas is over.
The Marshall Plan, which was officially called the European Recovery Programme, was a US programme passed in 1948 to help western Europe rebuild its economies after the devastation of the Second World War.
The plan provided billions of dollars in grants, loans and technical assistance.
Russia’s invasion has also stirred calls to muster a similar plan for Ukraine, whose economy recorded a 30 per cent decline in 2022 due to the war's disruption of businesses, infrastructure damage and a decrease in exports.
Pat Thaker, editorial director for the Middle East and Africa at the Economist Intelligence Unit, said as a result of the ongoing assault on Gaza, Israel and the international community will have escalating issues to deal with in the aftermath as a result.
"Unemployment, already over 45 per cent before the war will remain very high and the population will remain heavily dependent on aid. As a result, the risk of social instability will stay high in the short to medium term, especially if reconstruction and a recovery in the economy is slow," she said.
The private sector activity is also expected to slow down further, with little investment to support it in the coming years, Ms Thaker added.
