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Bottom line for Palestinian entrepreneurs: Reinvent the economy

Israeli restrictions and dependence on foreign aid have stifled the all-important business sector.

By Correspondent / June 10, 2009

Palestinians remove debris from a metal workshop destroyed after an Israeli air strike in Gaza City on May 20.

Suhaib Salem/REUTERS

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Ramallah, West Bank

Under pressure from visiting US Mideast envoy George Mitchell, Israeli cabinet ministers mulled easing a siege on the Gaza Strip that was designed to weaken Hamas.

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Amid US-Israeli disagreement over the Gaza blockade, West Bank settlements, and other issues involved in restarting the peace process, there is one point both sides agree on: The promises to boost the Palestinian economy during the recent round of talks stretching the final year of the Bush administration have produced insufficient results.

Hampered by Israel's economic blockade of Gaza and its restrictions on movement within the West Bank, the Palestinian economy appears to have little life of its own. While donor aid is playing a crucial role in sustaining Palestinians, the business sector – and the initiative, innovation, and enterprise that make it the chief engine of any successful economy – has been stifled.

"As a result of the Israeli security regime, the Palestinian economy has hollowed out, with the productive sectors declining and the public sector growing, as more of the population looks to the public sector for employment and assistance in coping with the impact of unemployment," said a World Bank report released last week.

Public-sector salaries account for 22 percent of the economy, while donor aid represents a full one-third. In a recent report, the World Bank said that $2.8 billion is needed in 2009.

"All of the donor aid money at best can be a Band-Aid solution to a hemorrhaging patient," says Sam Bahour, a Palestinian American technology entrepreneur. "Damage continues to be done. The private sector is like a compressed spring waiting to be let go."

'The siege has killed all prospects'

When Abdel-Ghani Abdeen began manufacturing plastic sewage pipes after the 1993 Oslo accords, he invested based on the optimism driven by the peace process. But after the breakdown of talks in 2000, and the Israeli blockade of Gaza after Hamas wrested control of the tiny coastal strip in 2007, his business has only been getting worse.

"The siege has killed all prospects," says Mr. Abdeen, chairman of the Abdeen Group. "Gaza was 30 to 40 percent of our business."

Israel and the US focused on promoting development in the West Bank to prop up the government of Palestinian Authority President Mahmoud Abbas. Even Israeli Prime Minister Benjamin Netanyahu has emphasized the need to promote an "economic peace" by building joint industrial zones to sap the motivation of – and support for – militants.

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