GAZA, (PIC)
The economy of the Gaza Strip has suffered long-term deterioration due to blockade and marginalization. Even before the war, a World Bank report from May 2023 highlighted that over half of Gaza’s population faced food insecurity, and more than half of the workforce was unemployed. So, how have all the economic sectors fared after a year of this genocidal war, and where might the region be heading?
To understand the magnitude of the economic catastrophe caused by the Israeli war on Gaza, we need to look at the pre-war state of Gaza’s economy. The area had been grappling with water and electricity shortages, rising costs, and irregular supplies. These social and economic challenges pushed the unemployment rate to around 46% and poverty to 26.5%, with 83% of workers earning less than the minimum wage, according to the UN Development Program.
This situation led to the shrinking of the agriculture sector and the decline of the industrial sector, which form the backbone of Gaza’s economy. As a result, Gaza’s ability to achieve real development weakened, its production structure became distorted and service-oriented, and its output fell far short of its potential. This was despite Gaza’s immense natural gas reserves, discovered off its coast in the 1990s.
Since the beginning of the ongoing genocidal war, the economic situation has worsened. By the end of December 2023, early estimates showed a sharp decline in living conditions. Unemployment soared to 79.3%, and poverty among Gazans rose to about 96%. Both total and per capita GDP contracted by approximately 24% and 26%, respectively, compared to the previous year.
The industrial sector, in particular, suffered from widespread destruction, continuous power outages, and disrupted supply chains. Industrial production dropped to about $51 million in the fourth quarter of 2023, compared to earlier periods.
By May 2024, the World Bank estimated that the damage to various economic sectors in Gaza was immense: 73% in education, 81% in health, 75% in municipal services, 55% in water and sanitation, 75% in information and communications, 63% in transport, 80% in trade, and 62% in construction and housing.
Economic contraction and hyperinflation
A year after the war, the World Bank’s report from September 26, 2024, revealed that the entire population of Gaza now lives in poverty, with inflation reaching unprecedented levels.
The report, titled “The Palestinian Economic Update,” highlighted a 35% drop in the real GDP of Palestinian territories in the first quarter of 2024—the largest ever recorded. Gaza’s economy shrank by 86% during this period, and unemployment in the Palestinian territories exceeded 50%.
The report also noted that the halt in commercial activities in Gaza left families without income, while the prices of essential goods skyrocketed, with inflation surpassing 250%. The near-total cessation of economic activity pushed Gaza into a deep recession, reducing its share of the Palestinian economy from an average of 17% in previous years to less than 5% now.
The report also emphasized the significant damage to Gaza’s healthcare system. The destruction of water supply infrastructure, solar panels, electricity shortages, and fuel for backup generators led to the closure of 80% of primary care centers. Only 17 out of 36 hospitals remain operational, three of which are field hospitals, providing about 1,500 beds across Gaza—compared to 3,500 beds before the war. The average bed occupancy rate now stands at 300%.
Destruction of two-thirds of buildings
Satellite images captured by the UN’s UNOSAT on August 5, 2024, revealed that about two-thirds of the buildings in Gaza had been damaged or destroyed since the war began. The most recent damage assessment, based on images collected in July 2024 and compared to earlier images from May 2023, showed that 151,265 buildings in Gaza had been affected.
Of these, 30% were completely destroyed, 12% severely damaged, 36% moderately damaged, and 20% possibly damaged. This means that around 63% of all buildings in Gaza suffered some form of damage.
UNOSAT added that the impact on civil infrastructure is evident, with thousands of homes and essential facilities damaged. The UN estimated that the debris generated by the war in Gaza amounted to approximately 41.9 million tons—14 times more than the debris from previous wars since 2008. There are about 114 kilograms of debris per square meter across Gaza.
Destruction of the economic engine
The UN’s Conference on Trade and Development (UNCTAD) reported that the war has left Gaza’s economy in ruins, with economic devastation spreading throughout the Palestinian territories. This destruction, driven by inflation, high poverty and unemployment rates, collapsing incomes, and financial constraints, has crippled the Palestinian government’s ability to function.
In its September 12, 2024, report, UNCTAD stated that the scale of Gaza’s economic collapse and unprecedented decline far exceeded the impact of previous military confrontations since 2008.
The report indicated that Gaza’s GDP fell by 81% in the last quarter of 2023, leading to a 22% contraction for the entire year. By mid-2024, Gaza’s economy had shrunk to less than one-sixth of its 2022 level.
According to UNCTAD, 80% to 96% of Gaza’s agricultural assets, including irrigation systems, livestock farms, orchards, machinery, and storage facilities, were damaged. This has crippled Gaza’s ability to produce food and exacerbated already high levels of food insecurity.
Additionally, the report confirmed that 82% of businesses in Gaza—the main engine of the economy—were destroyed, while the destruction of Gaza’s production base continued amid ongoing Israeli military operations.
About two-thirds of the jobs that existed before the war had disappeared by January 2024, leaving nearly the entire population in poverty—80% of whom were already dependent on international aid before the war.
A funding gap
UNCTAD’s report added that this dire situation is worsened by extreme pressure on the Palestinian government’s financial stability. In 2023, international donor support fell to its lowest level—$358 million—compared to $2 billion in 2008.
The World Bank’s report warned that the Palestinian Authority’s financial gap could rise to $2 billion in 2024, triple the shortfall in 2023, posing severe risks to service provision and potentially leading to systemic collapse.
The report stressed that the Israeli war has led to a severe cash shortage in Gaza, affecting access to humanitarian aid and essential financial services.
Bloomberg estimated that clearing the rubble in Gaza could take years and cost up to $700 million, with the task made even harder by unexploded bombs, hazardous materials, and human remains under the debris.
Bloomberg’s August 2024 report projected that the cost of rubble removal and reconstruction could exceed $80 billion, a process that would take many years, especially in Gaza City and its surroundings, which suffered the most damage. More than half of Gaza’s rubble is located in this area.
Optimistic Outlook
In a surprisingly optimistic outlook, given previous UN and international estimates, the United Nations Development Program (UNDP) and the Economic and Social Commission for Western Asia (ESCWA) believe that Gaza has the potential to recover, owing to its human capital. Despite the decline in the Human Development Index caused by the loss of youth and workforce opportunities, with GDP losses reaching $7.6 billion at the time of the report, there are strengths in Gaza’s favor.
The report, published on May 2, highlights that despite the growing losses, Gaza’s high levels of education and availability of skilled labor are positive factors, alongside its natural resources, such as marine wealth and natural gas fields.
However, the report emphasizes that Gaza urgently needs a comprehensive development plan, potentially drawing on models from other regions or countries that have faced similar crises of conflict, destruction, and instability but successfully achieved significant economic growth and improved living conditions.
Recent history offers several examples of nations that seemed to have no economic future but managed to rise dramatically. Examples include Angola’s reconstruction after its war, Rwanda’s recovery after the end of colonialism and civil war in 2000, Vietnam’s economic resurgence following the withdrawal of U.S. forces in 1974, and the development of Malaysia and Singapore after the end of British colonial rule.
