Gaza City, Gaza —
Israel's move to ease the three-year blockade on the Gaza Strip has put consumer products that were long absent back on Gazan shelves and is cited as one of the reasons the territory’s economy grew rapidly this year.

But the June move, which has allowed Israeli goods to start flowing into Gaza, is actually hurting Gaza businesses. By allowing Israeli goods to flood the coastal enclave, while continuing to restrict Gazan manufacturers by keeping them from importing raw materials and exporting goods, the policy tilts the playing field.

“The Israelis have turned Gaza into a place of consumption only,” says Ali El Haik, president of the Palestinian Businessmen Association. “They ban us from exporting and push their items on the market, killing our industry.”

Before Israel imposed a blockade on Hamas-run Gaza three years ago, Gaza exported more than $300 million worth of products each year, from garments to furniture to agricultural products to ice cream. Now, the only exports are limited seasonal shipments of strawberries and flowers, through a deal negotiated by The Netherlands.

Mr. Haik was one of the businessmen who met in October with the Israeli general who oversees the territories, Maj. Gen. Eitan Dangot. They asked Dangot, who heads Israel’s Coordinator of Government Activities in the Territories (COGAT), to begin allowing exports from Gaza.

Dangot said in October that Israel would seek to allow exports from Gaza by the middle of 2011. But before that can happen, Palestinian Authority (PA) officials would have to be present at the crossing points, said Guy Inbar, a COGAT spokesman, in a phone interview.

That is unlikely to happen until Fatah, the secular Palestinian faction that controls the PA, reconciles with Hamas, the Islamist group that rules Gaza. And few in Gaza have hope that will happen anytime soon.

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Israel – which together with the US and European Union consider Hamas a terrorist organization – has enforced a strict blockade of the Palestinian territory since Hamas wrested control of Gaza from Fatah in 2007. Israel relaxed the blockade in June, after a fatal Israeli raid on a Gaza-bound aid flotilla caused an international uproar. But the ban on exports remained in place, and most raw materials needed by manufacturers are also banned from entry.

Emand Al Wadiya, owner of Al Ameer Ice Cream company in Gaza City, is one of the manufacturers hurt by the ban on exports. Before 2007, 70 percent of his products were sold in the West Bank. Today, in his dormant factory, he flips through pictures showing the damage after his factory was bombed during Israel's 2009 war against Hamas.

Now, some of it is rebuilt, though the fire damage still shows through a whitewashed ceiling. Mr. Wadiya briefly began production again several months ago, but found that Gaza business owners quickly stopped buying his ice cream – they couldn’t keep it frozen with the daily power cuts. And without the ability to sell the ice cream in the West Bank, his factory now sits silent.

The longer the ban continues, the harder it will be for businessmen like Wadiya to rebuild relationships with partners in Israel, the West Bank, and Europe who formerly bought their products. Those partners have been forced to find other sources for goods in the years since 2007, and it will take significant effort for Gazan manufacturers to displace those newcomers, says Amr Hamad, deputy director of the Palestinian Federation of Industries.

Lifting of blockade helped Israeli, not Gazan, businesses

Israel also prohibits building supplies from entering Gaza unless designated for an international aid project, saying they could be used by militants to build fortifications or weapons. Gaza businesses need cement and steel to rebuild factories destroyed during Israel’s three-week offensive in the Gaza Strip that ended in late January 2009. Haik says allowing building supplies into the territory could create 300,000 jobs in a region where unemployment is 40 percent.

But even if industry can rebuild, many factories – such as Al Ameer Ice Cream company – can operate at only a fraction of their previous capacity since a key part of the market was in exports.

Mr. Hamad, of the Palestinian Federation of Industries, ticks off a list of industries that formerly relied on exports: the garment manufacturing industry used to export 90 percent of its products to Israel; 74 percent of the furniture made in Gaza was for export; and 70 percent of the ice cream and tomato paste produced in Gaza was sold in the West Bank. The industrial sector once employed as many as 35,000 workers, but now is operating at less than 30 percent capacity.

He says the relaxation of the blockade has not only hurt Gazan industry, but helped Israeli businesses. Prior to the blockade, Gaza imported $1.2 billion worth of goods from Israel every year, says Mr. Hamad. But starting in 2007, that dropped to $200 million a year, a significant loss for the Israeli private sector. Lifting the blockade on imports helped Israeli businesses, while Gaza businesses are still paralyzed.

“The Israelis have lifted the closure for their benefit, not for our benefit,” he says. “Israel … allowed their private sector to export to Gaza because they were hurting.”

How the furniture industry could lead a recovery

With the restrictions still in place, Gaza’s industry can’t compete with the Israeli goods now on the market. The garment and processed-food industries are particularly hard hit by the loosened blockade, says Hamad. “For those industries, even if you open the door for raw materials to come in, this relaxation is useless to them because they can’t export,” says Hamad. “Exporting is their lifeline.”

But one sector that could lead recovery if the export ban were lifted is the furniture industry. According to Hamad, it could begin exporting within a month, and the garment industry within perhaps four months.

There is still a long way to go, however. Inbar, the COGAT spokesman, says not only would the PA have to play a role, but that capacity would first have to be increased at the Karem Shalom crossing so that outgoing goods would not displace incoming goods. Using the Karni crossing, which was previously used for Gazan exports, is not an option because of security risks, he says. Israel is working on increasing the capacity of the crossing and developing infrastructure.

Hamad says the Karem Shalom crossing is not sufficient and has nowhere near the infrastructure needed to support full-scale exports. But if Israel were to open a crossing like Karni that could handle a steady flow of exports, he says Gaza industry could be back on its feet quickly.

“Don’t give me fish, don’t teach me how to fish,” he says. “Just give me a chance to fish. That’s all we need. If we are given the chance, we can absolutely compete.”