Gaza’s Economy, Crumbling for Years, Is Being Pounded to Dust

Loay Ayyoub for The Washington Post
Displaced Palestinians receive bottled water amid a shortage of drinkable water in the Gaza Valley on Saturday.

The 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 strike, said Kamal Almashharawi, 24, the company’s head of operations.

The devastation of Gaza’s infrastructure has only increased the need for solar panels. Almashharawi and others say that Israeli strikes have damaged or destroyed many rooftop solar arrays – among the few sources of power in Gaza as fuel runs out.

But with its office obliterated, its revenue cut and its employees sheltering from Israeli bombardments, the company, like most in the Gaza Strip, has bleak prospects in the months ahead.

Gaza’s economy already was crumbling. The war has pounded it to dust. “I don’t really see any light at the end of the tunnel,” Almashharawi said.

For the better part of two decades, economic growth in Gaza was close to stagnant amid regular conflict and Israeli restrictions on the movement of people and goods. Hamas, the militant group that has controlled the territory since 2007, often focused on military aims. With little outside investment and few jobs, living standards dropped as Gazans became poorer. Last year, 80 percent of the population relied on international aid, according to a United Nations estimate. The World Bank projected “nominal” GDP growth in 2023, driven by coronavirus pandemic recovery and more job permits for Gazans to work in Israel.

Most of whatever economic activity persisted has ground to a halt amid Israel’s response to the Hamas-led attack on Oct. 7. Bombardments and a ground invasion have left more than 11,100 Palestinians dead, according to the Gaza Health Ministry. Some 1.5 million people – much of the population of Gaza – have been displaced, according to the United Nations. “Gaza’s economy ceased to function as of the last quarter of 2023, and will continue to be so indefinitely,” read a statement this month from the Palestine Economic Policy Research Institute, based in Ramallah, in the West Bank.

Making accurate or final estimates of economic damage remains impossible. Israel has closed its borders with Gaza. A trickle of aid has entered across Gaza’s border with Egypt.

Palestinian authorities in Ramallah have said that Gaza’s economic output is running at 10 percent. “If anything, it’s a subsistence-type economy,” said Raja Khalidi, the director general of the Palestine Economic Policy Research Institute.

The U.N. Development Program published a report this month estimating that 61 percent of jobs in Gaza had been lost, along with $857 million of 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 present 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 haven’t reached bottom yet,” said Richard Kozul-Wright, who is the lead author of a report on Gaza’s economy published by the U.N. Conference on Trade and Development that was published in September.

After the violence subsides, the economic future of Gaza’s 2.4 million residents will be another line of battle. An economically viable Gaza is widely considered a prerequisite for any lasting peace. Some experts say that the pressure placed on Gaza in the years before Oct. 7 had increased support for Hamas.

But many in Israel say instead that the country had become too lenient with Gaza’s economy, allowing Hamas to enrich itself.

Charles Freilich, a former deputy national security adviser in Israel, said that many in Israel felt that the small but increasing level of economic cooperation with Palestinians living in Gaza had proved to be an “overall failure.”

From bad to worse

Experts say that Gaza, with its coastal location, arable land and young population, could have a productive, even thriving, economy.

As recently as a few decades ago, some Israeli economists had hoped that Gaza could follow in the steps of Singapore, “very small,” but “with a few million people who are young who are either now or will be very educated,” said Paul Rivlin, an expert on Middle Eastern economies at Tel Aviv University. “It didn’t happen.”

Per capita income in Gaza is a quarter of that in the West Bank, according to the International Monetary Fund. That gap has widened significantly since 2005, when Israel withdrew militarily from Gaza, and since Hamas took power.

Israel tightly controls its borders with Gaza, limiting exports from the enclave and restricting its imports, citing concerns over the import of “dual use” goods that could be directed into weaponry.

The restrictions hit hard. Only 40 percent of the population that could work did so in 2021, according to the International Labor Organization. The Hamas-run civil sector employed roughly 50,000 people, about a tenth of Gaza’s estimated labor force.

Earlier this year, the Gaza-based Al Mezan Center for Human Rights reported that the number of people employed in construction had dropped from 70,000 before the restrictions to 700 – despite Gaza’s booming population. The war will make housing needs more acute. “It took four years of conflict in Syria to destroy a comparable share of housing stock,” said Abdallah Al Dardari, UNDP director for Arab states.

Although Egypt imposed fewer economic restrictions on its border with Gaza, Rivlin said, it’s “a long way from the center of the Egyptian economy.”

In 2014, after a rift with Hamas, the Egyptian government destroyed most of the smuggling tunnels between Gaza and Egypt – a key source of black-market income, and funding for Hamas.

Kozul-Wright said Gaza was not a “functioning economy” before the present war.

Some economists have said the Palestinian territories, and Gaza in particular, have experienced “de-development” or “development in reverse,” with the population increasingly reliant on diminishing aid.

In 2020, UNCTAD estimated that the total economic loss for Gaza between 2007 and 2018 was $16.7 billion.

Little hope

Satellite imagery shows that huge Gaza neighborhoods have been destroyed since last month, including areas of Gaza City once known for commercial activity.

Israel has rescinded the permits of Palestinians who had worked in the country, and those who were in Israel have been deported. Strict sanctions have made sending cash to Gaza difficult, and aid has become scant.

In 2021, the Israeli government began a process that would allow 17,500 Gazans to work in Israel. Although most who applied did not receive permits and those who did represent a tiny fraction of Gaza’s workforce, the program still was a break from the past.

Israel allowed money from Qatar – tens of millions of dollars a month – to flow to Gaza, in part so that Hamas could keep the government functioning.

Even before Oct. 7, some Israelis were raising questions about the wisdom of these policies. The veteran military journalist Amos Harel wrote in Haaretz barely a week before the attack that the notion that Gazans could pressure Hamas into economic improvements was a “false idea.”

Critics say that Hamas was never focused on improving economic conditions for those in Gaza, many of whom it classifies as refugees and thus the responsibility of the United Nations. The group appears to have used much of its funds to build a vast network of tunnels.

The U.S. Treasury has sharply tightened sanctions on Hamas, accusing its leaders of living “in luxury” while Gazans face “dire economic prospects.”

Freilich, the former Israeli deputy national security adviser, said it was clear that Israel would no longer permit people from Gaza to work in the country.

“There will be an attempt to end any Israeli involvement and responsibility for providing electricity, water and things like that,” he said, referring to the services that Israel has provided under the 1993 Oslo accords.

U.S. Secretary of State Antony Blinken said this month that any peace agreement “must include a sustained mechanism for reconstruction.” The Palestine Economic Policy Research Institute estimated this month that the cost of rebuilding 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 Middle Eastern economies at Australian National University. “The only way for the economy to recover, if at all, is through extensive international intervention.”

“It was an unacceptable situation before the war,” Khalidi said. “We know how much that contributed to the sense of desperation . . . that Gaza had become accustomed to.”