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Worldcrunch

Gaza's Economy Imploding After Egypt Closes Smuggler Tunnels

Article illustrative image Partner logo A smuggling tunnel in Rafah, southern Gaza Strip

TEL AVIV  While we talk about a certain economic stability in Ramallah, the economy in Gaza is in free fall, which is due in no small measure to the massive closing of the tunnels used to smuggle in products across the border from Egypt.

The Palestinian economy, at least in the West Bank, is not influenced by events in neighboring Arab countries. In Ramallah, we have even recently begun to talk about bona fide economic stability.

Palestinian Authority Prime Minister Rami Hamdallah has good reason to believe that his government will be able to pay its workers before the end of the year.

This comes after two years when a much talked-about crisis in the Ramallah government raised fears that the Authority wouldn't be able to pay its salaries. Meanwhile in Gaza, people were talking about the economic situation as something of a boom — thanks to the partial removal of the Israeli blockade, $500 million given by Qatar for development, and the expansion of the smuggling tunnels.

But now, the situation has been reversed, and the Gaza economy is in free fall. This is primarily because of the new Egyptian government’s closing of the smuggling tunnels, which have accounted in the past for up to 50% of imported goods in Gaza. If three years ago there were hundreds of tunnels (some even have estimated as many as 1,200) actively being used at the Rafah border, now there are only 30 in operation.

Egypt closed all the other tunnels in June after realizing most of the terror attacks in the Sinai Peninsula came from Gaza through these tunnels. On Aug. 23, the Egyptian Army halted all the movements in tunnels. One of the most immediate results is a massive gas shortage in Gaza, which has produced long lines at gas stations throughout the region.

A tunnels economy

The Gazan people rely mostly on salaries from the government in Ramallah, the Hamas authorities and international aid. Although these salaries have always been proportionally very low, the purchasing power was stronger when cheaper merchandise was coming in from Egypt. 

The most obvious example is gas. In Egypt, thanks to government subsidies, gasoline is sold at just $0.28 per liter. When it was smuggled into Gaza, it could be sold at four times that price, after Hamas taxes were added. The case is the same for many other goods like food and raw materials for industry and agriculture.

There is little doubt that without the tunnels, Gaza’s economy could implode. The Palestinian economics commentator Adel Samara wrote last week in the Palestinian Independece Party newspaper that even if the Kerem Shalom crossing with Israel operates at full capacity, it won't be enough.

According to Samara, what officially comes through this crossing from Israel represents only 30% of what Gazans need. Samara and many other Palestinians challenge the Egyptians: If there is a security factor to the closing of the tunnels, you can open an official commercial crossing. It might be contrary to your treaties with Israel, but it is in your own interest too. 

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About this article source Website: http://www.calcalist.co.il/

Calcalist ("Economist") is Israel's leading business newspaper, founded in 2008 and published by the Yedioth Ahronoth Group. While it targets professionals in the fields of economy, law and business, it includes articles across a wide variety of topics to appeal to broader audience.

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