The Palestine-Israel Journal is a quarterly of MIDDLE EAST PUBLICATIONS, a registered non-profit organization (No. 58-023862-4).
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Editorial Board

Hisham Awartani

Danny Rubinstein

Sam'an Khoury

Boaz Evron

Walid Salem

Ari Rath

Zahra Khalidi

Daniel Bar-Tal

Ammar AbuZayyad

Galit Hasan-Rokem

Khaled Abu Aker

Galia Golan

Nazmi Ju'beh

Gershon Baskin

Edy Kaufman

Ata Qaymari

Benjamin Pogrund

Nafez Nazzal

Simcha Bahiri

Nadia Naser-Najjab

Dan Jacobson

Jumana Jaouni

Dan Leon

Anat Cygielman

Khuloud Khayyat Dajani

Izhak Schnell



Vol.8 No.1 2001 / Jerusalem

Economics

The Declining Economy of East Jerusalem

East Jerusalem‘s business community is being destroyed.

     interview with Hanna Siniora

Palestine-Israel Journal: When Israel took over the Arab part of the city in 1967, what attitude did it adopt? Did it try to leave things as they were, or did it try to develop the economy?
Hanna Siniora: Well, let me say that the first period of the Israeli occupation was like a honeymoon. When meeting Palestinians from Nazareth, I remember their saying that the first couple of years were OK, but we should wait and see. We did and soon saw the discrimination that was practiced, not only in the West Bank and Gaza, but also in Jerusalem. Since 1993, East Jerusalem has been a closed city; people from the West Bank and the surrounding villages cannot reach it. That, in itself, actually took 50 percent of the business away from the city. East Jerusalem used to be the center for the surrounding villages and the result of the closure is that these villagers now go to Ramallah or Bethlehem to buy and sell. The city is almost completely isolated from the rest of the country. At the moment, there is very little tourism to Jerusalem, which is traditionally a tourist and pilgrimage city. All in all, I don’t think more than 20 percent of the original businesses of East Jerusalem exist today.

Going back to the 1993 closure that we want to ask about, was this a sort of turning point in the economy?
Well, from that time onward there has been a tremendous, continuous decline of the business community and the economy of East Jerusalem. In order to just survive, most Palestinian businesspeople in East Jerusalem open a branch of their business in either Bethlehem, Ramallah or somewhere else in the West Bank, especially on the road between Jerusalem and Ramallah in A-Ram. Israeli taxation policy in East Jerusalem has constantly been calling for an annual rate increase, so the same businessman who saw his business decline by 50 percent in 1993, and today by 80 percent, is forced to pay taxes that have been rising every year since 1993 by 10-12 percent — not only the income tax but also the Arnona (the municipal tax). Most of the business community and taxpayers owe money to the tax authorities these days because they are unable to even pay minimal expenses to maintain their households and feed their families.

Is there any difference, in your point of view as a Jerusalem businessman, between Labor and the Likud?
No. Unfortunately, although the perception in Israel is that Labor is supposed to be more amenable to political compromise, to a political solution, and to a negotiated settlement, when it comes to taxation and economic policies, both under Netanyahu and Barak we had the same repressive measures.

Kollek and Olmert?
Well, it is said under Kollek we had two different periods: between 1967 and 1973 things were better. After 1973 they started to deteriorate. Although it collects more than 25 percent of its income from East Jerusalem, the municipality does not invest more than 5 percent of that money in services and education there. You can see it even in the streets. I live in Beit Hanina; I have a house classified for Arnona purposes as Area A, yet I do not have even a road in front of my house. For the past four years, I have applied to the municipality to pave the road. I pay high taxes and yet, at the same time, I have to walk in mud. Let’s talk about Salah Eddin Street (East Jerusalem) that is classified as Area A, and Jaffa Road (West Jerusalem) also classified as Area A. In the latter, business is booming; shopkeepers have not suffered repressive measures. The businessman on Salah Eddin Street, on the other hand, whose business declined by 50 percent in 1993, and today even further, has to pay the same rates of municipal and income taxes as does the successful businessman on Jaffa Road. Some people prefer to close their shops. In fact, the main streets of East Jerusalem have many closed shops.

was this reversal in 1973? Because of the war?
Yes. Between 1967–1973 the policy in Israel toward the occupied territories was fairer. After that, the Israeli policy changed dramatically. It became increasingly repressive, stunting the growth of the economy in the West Bank. If you look at the per-capita income in the central area — East Jerusalem, Bethlehem and Ramallah — it is about U.S.$ 2,000, while in the central area in Israel which is around West Jerusalem, the per-capita income is about U.S.$ 17,000, so the ratio is 1:8.

the present Intifada had any direct effects on East Jerusalem?
Actually, the Intifada is directed towards the Israelis to make them understand that we cannot live any longer under occupation, and that there has to be some change in the direction of a two-state solution. Economically, since the outbreak of the Intifada, Barak has completely isolated East Jerusalem from the West Bank and this permanent, overall closure has caused the economic situation to deteriorate even further. I have a small piece of land in Jericho, an orange grove. I haven’t been able to pick one single orange during this winter because I cannot reach Jericho.
Importers are also suffering. As of now we have in Israeli harbors around 3,000 containers that are delayed in the name of security before they are cleared. An Israeli importer can have 100 containers out in one day, while the Palestinians can receive only one, two or three containers a day. There is a big backlog of Palestinian containers sitting in Haifa and Ashdod, meaning not only that the goods are not arriving but also that one has to pay demorage (for storage). So instead of making money, the Palestinian importer is actually losing, because of the additional costs that eat up his profits.

Can East Jerusalemites import independently of Israel or do they have to go through Israeli agents?
The issue of direct importation started to develop with the coming of the Palestinian Authority. East Jerusalemites continue to buy through Israeli agents, while in the West Bank complete dependence on Israel for import now has been brought down to 80 percent. In other words, 20 percent of West Bank imports are carried out directly; however, 80 percent of our imports still come from Israel or through Israeli agents. Policies making things more costly impede the Palestinian importer from acting on his own and force him to continue to depend on Israeli agents or importers.

What is the basis of the East Jerusalem economy and how does it compare with that of West Jerusalem?
Well, the East Jerusalem economy as a whole is not an industrial economy; it depends on civil servants and a local business community associated with tourism — hotels, restaurants, souvenir shops. Now over the past five months, these tourist-related businesses have declined by 90 percent. Most of the hotels in East Jerusalem are closed because the owners cannot afford to pay the salaries of their employees.

What is the employment picture in East Jerusalem? Does a large proportion of people work in West Jerusalem?
East Jerusalemites hold blue identity cards that allow them to work in Israel without the need for a permit. The West Bank laborer, on the other hand, is required to have a permit in order to enter Israel and even East Jerusalem. Today, only about 5,000-10,000 laborers from a high of 150,000 are allowed in. So the labor community in East Jerusalem is not suffering as much as its counterpart in the West Bank, but the business community in East Jerusalem is actually being destroyed. As I explained, if the closure is eased, tourists might possibly be able to come back to Jerusalem and Bethlehem, then the hotel and tourism business will start to perk up, but I doubt it. Everybody is expecting that the new prime minister [Ariel Sharon], true to his colors, will probably use more repressive measures and more collective punishment. My feeling is that the next year or two are going to see more economic difficulties, especially in the tourism business, and many bankruptcies. Some people were encouraged by the peace process to expand; they invested money and now they are not able to repay their loans.

Mr. Siniora, we want to ask you, as a person with economic horizons, how you see the economy of East Jerusalem when there will be a Palestinian state? What will be its basis? Will it be hi-tech?
The Palestinian economy, in general, will be based on three pillars. One pillar is what is already built; it is the tourism business and it will probably be the most important industry in Palestine. This can be compared to the development of that industry in Cyprus, for example, where, as a result, the per-capita income has reached the same level as that of Israel — U.S.$ 17,000. I see the Palestinian economy as leaning heavily towards the tourism industry. The second is that, like in Israel, we have the human resources to develop hi-tech industries. But such industries take a long time: in Israel preparations started 15 years ago. Today we are still in a nascent preparatory stage, but I believe we’ll go ahead in that direction, and in the future, the hi-tech side of business will probably be as important as that in Israel. If I look at comparisons, when Israel started in 1948, it had an agriculture–based economy, like the Palestinian economy of today. We have the ability and the human resources to develop towards tourism and hi-tech, and in the right conditions we can use them.
The third pillar is what has been ignored universally. Today we have high unemployment rates of almost 50 percent in the Gaza Strip and 40 percent in the West Bank. In East Jerusalem it is less — about 20 percent. I believe SMEs (small and medium enterprises) should have a godfather, somebody to look after them, because these small industries and services can actually double the labor they now employ. At the moment, nobody is catering for them. If there were a small-business authority that would study their problems, provide them with small loans, help train management and upgrade products, then this SME community could, instead of employing today about 300,000 people, be able to employ 600,000. This would help us overcome our unemployment problem and reduce our dependence on Israel or any other place.
With these three pillars, in conditions of peace and stability, we can build a prosperous economy.








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