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Solar energy company Sunbox paid its 15 full-time employees in Gaza this month. But next month is uncertain: The company’s main offices in Gaza City were destroyed in an Israeli attack, said Kamal Almashharawi, 24, the company’s operations manager.
The destruction of Gaza’s infrastructure has only increased the need for solar panels. Almashharawi and others say Israeli strikes have damaged or destroyed many rooftop solar panels – one of the few sources of energy in Gaza as fuel runs out.
But with its office destroyed, its revenue cut and its employees sheltering from Israeli bombardment, the company, like most in Gaza, faces a bleak outlook in the coming months.
Gaza’s economy was already collapsing. The war reduced it to rubble and ashes. “I don’t really see any light at the end of the tunnel,” Almashharawi said.
For nearly two decades, economic growth in Gaza stagnated due to periodic conflict and Israeli restrictions on the movement of people and goods. Hamas, the militant group that has controlled the area since 2007, has often focused on military targets. Due to little outside investment and few jobs, living standards fell as Gaza’s population became poorer. According to a United Nations estimate, 80 percent of the population was dependent on international aid last year. The World Bank forecast “nominal” GDP growth in 2023, driven by the recovery from the coronavirus pandemic and more work permits for Gazans seeking to work in Israel.
More than 11,100 Palestinians have died in bombardments and a ground invasion, according to Gaza’s health ministry. According to the United Nations, about 1.5 million people – much of Gaza’s population – have been displaced. “Gaza’s economy has ceased to function as of the last quarter of 2023 and will remain so indefinitely,” said a statement this month from the Palestine Economic Policy Research Institute, based in Ramallah in the West Bank.
An accurate or definitive estimate of the economic damage remains impossible. Israel has closed its borders with Gaza. A trickle of aid flowed across the Gaza-Egypt border.
Palestinian authorities in Ramallah said Gaza’s economic output was at 10 percent. “If anything, it is a subsistence economy,” said Raja Khalidi, the director general of the Palestine Economic Policy Research Institute.
The U.N. Development Program released a report this month estimating that 61 percent of Gaza’s jobs had been lost, along with $857 million in economic activity, setting the economy back “by many years.”
Although Gaza has a long history of conflict, there are no parallels to the scale of the current devastation. Some Palestinian officials put the economic cost of Israel’s ground operation in Gaza in 2014 at more than $6 billion. The current war is already longer and far more destructive.
“We have not yet reached rock bottom,” said Richard Kozul-Wright, the lead author of a report on Gaza’s economy released by the U.N. Conference on Trade and Development in September.
Once the violence subsides, the economic future of Gaza’s 2.4 million residents will be another point of contention. An economically viable Gaza Strip is widely seen as a prerequisite for any lasting peace. Some experts say the pressure brought to bear on Gaza in the years before October 7 increased support for Hamas.
But many in Israel say instead that the country has become too lenient on Gaza’s economy, allowing Hamas to enrich itself.
Charles Freilich, a former deputy national security adviser in Israel, said that many in Israel believe that the small but increasing economic cooperation with Palestinians living in Gaza has proven to be a “general failure.”
Experts say Gaza, with its coastal location, fertile land and young population, could have a productive, even thriving, economy.
Just a few decades ago, some Israeli economists had hoped that Gaza could follow in Singapore’s footsteps, “very small” but “with a few million young people who are very educated either now or in the future,” said Paul Rivlin, an expert Middle Eastern Economies at Tel Aviv University. “It did not happen.”
According to the International Monetary Fund, Gaza’s per capita income is a quarter of that of the West Bank. This gap has widened significantly since 2005, when Israel withdrew militarily from Gaza, and since Hamas came to power.
Israel tightly controls its borders with Gaza, limiting exports from the enclave and restricting its imports, citing concerns about imports of “dual-use” goods that could be used to make weapons.
The restrictions are hitting hard. According to the International Labor Organization, in 2021 only 40 percent of the population who could work did so. The Hamas-run civilian sector employed around 50,000 people, about a tenth of Gaza’s estimated workforce.
Earlier this year, the Gaza-based Al-Mezan Center for Human Rights reported that the number of construction workers had fallen to 700 from 70,000 before the restrictions, despite Gaza’s population boom. The war will increase the need for housing. “The conflict in Syria has taken four years to destroy a comparable proportion of the housing stock,” said Abdallah Al Dardari, UNDP director for Arab states.
Although Egypt imposed fewer economic restrictions on its border with Gaza, it is “far from the center of the Egyptian economy,” Rivlin said.
In 2014, following a dispute with Hamas, the Egyptian government destroyed most of the smuggling tunnels between Gaza and Egypt – a major source of black market revenue and a key source of funding for Hamas.
Kozul-Wright said Gaza was not a “functioning economy” before the current war.
Some economists say the Palestinian territories, and Gaza in particular, have experienced “regression” or “backward development,” with the population increasingly reliant on declining aid.
In 2020, UNCTAD estimated the total economic loss for Gaza between 2007 and 2018 at US$16.7 billion.
Satellite images show that huge neighborhoods in Gaza have been destroyed since last month, including areas of Gaza City once known for commercial activity.
Israel has revoked the permits of Palestinians who worked in the country, and those who were in Israel have been deported. Tough sanctions have made it difficult to send cash to Gaza and aid has become scarce.
In 2021, the Israeli government initiated a process that would allow 17,500 Gazans to work in Israel. Although most applicants did not receive permits and those who did made up only a tiny portion of Gaza’s workforce, the program nonetheless represented a break with the past.
Israel poured money from Qatar – tens of millions of dollars a month – into Gaza, in part so Hamas could keep the government running.
Even before October 7, some Israelis were asking questions about the wisdom of this policy. Veteran military journalist Amos Harel wrote in Haaretz almost a week before the attack that the idea that Gazans could push Hamas for economic improvements was a “wrong idea.”
Critics say Hamas has never focused on improving economic conditions for Gazans, many of whom it considers refugees and therefore the responsibility of the United Nations. The group appears to have used much of its resources to build a vast network of tunnels.
The US Treasury Department has significantly tightened sanctions against Hamas, accusing its leaders of living in “luxury” while Gazans face a “dire economic outlook.”
Freilich, Israel’s former deputy national security adviser, said it was clear that Israel would no longer allow people from Gaza to work in the country.
“It is trying to end all Israeli involvement and responsibility for the provision of electricity, water and the like,” he said, referring to the services Israel provided under the 1993 Oslo Accords.
US Secretary of State Antony Blinken said this month that any peace agreement “must include a sustainable mechanism for recovery.” The Palestine Economic Policy Research Institute estimated this month that reconstruction costs could reach $20 billion over the next five years.
Gaza’s economy could shrink by 30 to 70 percent, said Anas Iqtait, an expert on the Middle East economy at the Australian National University. “If anything, the economy can only recover through extensive international intervention.”
“Before the war, it was an unacceptable situation,” Khalidi said. “We know how much this contributed to the sense of desperation that Gaza had become accustomed to.”
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