You can bank on it

These are all palpable signs of an economic revival that started in 2007, and has continued thanks to three consecutive years of relative peace and an economy that was spared by the global financial crisis due to its relative isolation. Things have picked up in the Gaza Strip as well. There, the economy has registered an eye-popping 16 per cent growth in the first half of this year. But economists warn that those figures merely indicate that growth is starting from a very low base, and that a third of the population in Gaza still lives in poverty. In the more developed West Bank, by contrast, nine per cent growth in the first six months of 2010 is fattening wallets, brightening moods, and attracting investors.

Entrepreneurs are “voting with their pocket books,” says Howard Rosen, an economist with the Peterson Institute for International Economics. Proof, he says, that businesses are willing to set up shop in the West Bank despite the absence of a formal Palestinian political settlement with Israel, as long as the risk of violence is low.

And “nuts-and-bolts, bottom-up” as well  as top-down reforms implemented by Palestinian Prime Minister Salam Fayyad to boost security, revamp public finances and increase government transparency have helped create fertile ground for growth, says Robert Blecher, an expert on Palestinian-Israeli issues at the International Crisis Group. Fayyad’s efforts have led to investment from, and partnerships with, several tech giants including Apple, Google, Intel, Hewlett-Pakcard and Microsoft. Cisco Systems is currently overseeing a three-year, $10-million investment plan in the area.

Still, the economy is a long way from kicking its dependence on foreign donors’ largesse—money that still supports many projects and helps keep the public budget in the black, notes Udo Kock, the International Monetary Fund resident representative for the West Bank and Gaza. Most of the growth has been in real estate and retail—providing a one-time boost but no long-term increase in overall production capacity.

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That’s why some Palestinian entrepreneurs remain gloomy. The economy will never really develop until the Israeli occupation ends and foreign donors are gone, says Khaled Sabawi, president of MENA Geothermal, a green-energy company he founded in the West Bank in 2007. Though the Israeli government has been easing some barriers to movement, Sabawi says military roadblocks and checkpoints make it hard to move people and goods around. And ongoing Israeli restrictions on imports of machinery that could be used for military as well as civilian purposes mean businesses in many sectors are forced to scramble to get the equipment they need. Foreign investors also struggle to obtain visas to the Palestinian Territories from Israeli authorities, says Sabawi. He himself was denied entry into the West Bank three times last year. Aid can also turn into an enemy for private business, he says, as NGOs propped up with foreign money often offer salaries four or five times higher than what for-profit Palestinian companies can afford, and end up drying up the local pool of talent.

In both the West Bank and Gaza, bursts of economic growth are doomed to reach a ceiling that can’t be lifted without a political solution, many say. Until then, notes Sabawi, “we see a big dead end.”