During a PNGO Workshop: The Private Sector- As the Core of The Economy- Fears Collapse and Calls for Lifting All Restrictions

Civil society organization officials and activists and private-sector representatives have warned of the dangerous repercussions resulting from the imposed Israeli siege on Gaza. The 14-year-old blockade forbids the entry of construction and raw materials and prevents export. This calls for the need to stop the existing deterioration and pressure to lift the siege and support private sector institutions.

This came during a workshop entitled, The Private Sector Economy in the Gaza Strip: Reality and Challenges, which was organized by PNGO in partnership with Friedrich-Ebert-Stiftung. Both the speakers and the attendees recommended working on approving a strategic plan to revive and advance the private sector.

They have also recommended encouraging the establishment of small and medium enterprises in the Gaza Strip, and supporting the services sector as well as electricity and water, digital transformation, oil and gas industries for real development.

Amjad Al-Shawa, PNGO director, said in his opening speech that the time Palestine is going through is very difficult, especially in light of the tightening of the Israeli occupation's siege on the Gaza Strip.

The private sector is the core of development, and it is being targeted by the Israeli policies by directing blows to factories and shops through the closure of border crossings and halting importing and exporting, Al-Shawa continued.

Al-Shawa pointed to the high rates of unemployment and poverty, as 85 percent of the population in Gaza depends on little aid. Farmers, on the other hand, suffer from new export restrictions in the time that there is no real policy to support the private sector.

Al-Shawa stressed the need to reject any conditions for reconstructing Gaza and to cancel the so-called Gaza Strip Reconstruction Mechanism, which places restrictions on the entry of construction materials into the Strip. There must be, according to Al-Shawa, a sincere need to work towards a complete lifting of the Israeli siege.

In turn, Dr. Usama Antar, Friedrich Ebert Stiftung representative, said that international aid covers only 10% of economic sectors annual losses.

Antar asserted the need to change reality, and work to achieve an economic and social vision that qualifies for a political one.

Abu Mudallalah presented his paper during the workshop and considered that the private sector in the Gaza Strip is facing the danger of collapse with the outbreak of the Corona pandemic. Neither the existence of the strict Israeli siege imposed on more than two million Palestinians nor fighting COVID-19 make the situation any better.

Regarding the private sector indicators, Abu Mudallalah pointed out that there are a number of requirements that must be met for the sector to thrive, the output growth rate is the most important of which because it is a sign of optimism about the future of aggregate demand and performance economy, which motivates implementing new projects.

There is instability in the growth of the gross domestic product in the Gaza Strip, Abu Mudallalah said, which amounted to -12.3% during 2020. This shows the poor economic growth in the sector, which negatively affected its activity.

The abundance of bank loans would support the increase in private investment, he explained while noting that the growth rate of facilities granted to the private sector decreased significantly during 2020, compared to 2016, and this was damagingly reflected in the sector's ability to invest and produce.

In the same context, investment is affected by the fluctuations in the currency exchange rate, Abu Mudallalah added. This usually results from economic reform programs offered to developing countries, and is accompanied by a high rate of inflation as a result of increased exports, a lack of imports and a rise in their prices. This state often leads to a general decrease in spending and high interest rates, which negatively affect investment.

He emphasized that taxes directly and negatively affect private investment through their impact on the incomes available to the family sector, and that leads to a lack of savings and a reduction in investment.

Government spending, on a different note, negatively affects investment in the private sector when state revenues decline or when spending declines to address inflation or deficit. However, it affects the public budget positively when government spending rises, directly or indirectly.

According to Abu Mudallalah, high wages and salaries in government spending reflect the weakness of government spending directed to the private sector, and to infrastructure and development expenditures, and thus harmfully impacts the capacity of the private sector.

It is no secret to anyone that the economic situation in the Strip is unstable, he declared. Due to the unraveling of recent events, there has been a lack of liquidity in the three currencies used in the Palestinian economy, which adversely impacted private sector investment.

Furthermore, Abu Mudallalah considered that foreign debt is a problem with a double impact on the economies of developing countries, pointing out that the existing external debt increased during 2020 compared to 2018, as it amounted to approximately 1031 million dollars in 2018, rising to 1324 million dollars during 2020. Most debts were not properly invested to advance economic development and revitalize productive projects. Rather, they were directed to bridge the deficit in the public budget.

As for the economic effects of the Corona pandemic on the private sector in the Gaza Strip, Abu Mudallalah said that the final results indicated that 37 percent of the institutions in the Strip were closed for several days as a result of government measures. 36% of small businesses closed compared to 37% of medium businesses and about 47% were large businesses.

Service institutions were subjected to closure by 48%, which is the highest among other institutions, Abu Mudallalah highlighted, while financial and insurance institutions were less exposed to closure by no more than 22%.

Average sales/production decreased compared to the normal situation by 50 percent, as said by Abu Mudallalah, and most establishments said that the volume of sales/production decreased during the three months of closing by 93%, with a decrease in the average sales/production by 55% compared pre COVID situations. Naturally, institutions working in the financial and insurance fields recorded the highest decrease in the average sales/production by 100%, followed by construction by 94%.

He pointed out that 51% of institutions reported difficulty in importing inputs, raw materials, or finished goods and purchased materials. The construction industry was the most affected by 73%, followed by the trade industry with 71%, and the manufacturing industry with 69%.

Commenting on the losses of the private sector as a result of the recent Israeli aggression, Abu Mudallalah said that the industrial, commercial, agricultural, medical and infrastructure sectors experienced heavy losses as a result of the deliberate targeting of operating facilities by Israeli war jets, which amounted to more than 300 million dollars.

The industrial and commercial sector losses amounted to $30 million after the Israeli occupation bombed a number of factories, and more than 1,174 housing units, he added. In addition, more than 7,073 housing units were damaged.

On the agricultural side, Israeli warplanes bombed hundreds of agricultural acres in Khan Yunis in the south and Beit Lahia in the north, in addition to damaging a large number of agricultural crops, destroying a number of poultry and livestock farms in the border areas, and targeting 20 health facilities, and 31 factories from various industrial sectors.

At the end of the presentation, a discussion took place on various economic and social issues, and a number of businessmen and interested parties made a number of recommendations.

Osama Kuhail, head of the Palestinian Contractors Union, remarked on the challenges in which he considered in the previous reconstruction mechanism as the most dangerous one.

Kuhail also touched on double taxation and non-payment of dues from tax returns to contracting companies, in addition to marginalizing the private sector from assistance and compensation for losses mechanisms.

Faisal Al-Shawa, Chairman of the Board of Directors of the Palestinian Trade Center PalTrade, considered that among the found challenges are the some related to the continuous lack of funding.

He criticized the absence of imports desired returns as the funds are directed abroad in light of the failure to receive funds in the local market. Therefore, banks are unable to provide cash or direct financing to provide soft loans to the private sector.

In the same sense, Nabil Abu Ma'ileq, Businessmen Association Vice, expressed that the value of banks deposits in the Gaza Strip has declined compared to the West Bank during the past fifteen years, when the Gazan economy declined by 4 billion dollars.

He attributed this to the lack of policies to support the private sector in the Gaza Strip, in addition to the decline in US and European international support for lending to this sector in Gaza.

The participants stressed the importance of researching the establishment of a free trade zone to stimulate trade with the outside world and the need for transparency in investment policies between state institutions and the private sector. There also has to be an information link necessary to establish projects, and to consolidate cooperation between private sector companies, non-governmental organizations and public institutions.

Adding to that, they recommended supporting the transformation of the digital economy by working to establish a national and international fund to support technological development in Palestine, based on local national contributions, as well as international bodies.

In the same context, they addressed taking measures to encourage investment in the Palestinian technological sector, as well as working to develop Palestinian expertise in same field, and to limit its exploitation by Israeli companies.

The attendees called for supporting the business sector with services, electricity, water, and sanitation as well as lifting all restrictions imposed on access and movement to the West Bank and the rest of the world, which includes building a seaport, an airport, and launching water and electricity projects.

Moreover, the participants stressed the importance of enabling the Palestinian government to develop oil and natural gas resources off the coast of Gaza, which would secure the resources required to rehabilitate, reconstruct and revive the Gaza economy, as well as strengthening the financial position of the Palestinian National Authority and economy in general.

Finally, they recommended encouraging the establishment of small and medium-sized enterprises to achieve economic development, alleviate unemployment, and put pressure on lending institutions that provide soft loans to facilitate their procedures for the benefit of different groups of society and to benefit from these loans in productive projects.


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