GAZAN BUSINESS STRUGGLES WITH DISENGAGEMENT

1. (C) Summary: Gazan private sector contacts are on edge
over current GOI-PA negotiations regarding the
post-disengagement border crossings, arguing that without
freedom of movement at Karni, Erez, and Rafah terminals, the
Gazan economy will not survive Israel's withdrawal. Business
leaders believe that any "lockdown" of the Gaza Strip in the
run-up to and during disengagement will further harm
manufacturing and construction enterprises already hampered
by a recently tightened closure regime. Several contacts
have expressed concern over what they view as
counterproductive political disagreements between the GOI and
the PA on crossings, especially the nature of door-to-door
cargo shipment and "safe passage" between Gaza and the West
Bank. Hanan Taha of Paltrade emphasized that the private
sector "does not care" how the parties resolve their
differences as long as Gazan goods and people are able to
move in and out of the Strip, and even urged the PA to accept
the GOI's preference for free-circulating trailers rather
than Palestinian trucks moving through Green Line Israel.
Housing engineer Jawdat al-Khoudry of
the Palestinian Business Association (PBA) disagreed with
what he views as the donor community's insistence on removing
settlement rubble to Egypt, asserting that the private sector
can generate significant employment by combining rubble from
the settlement houses with already-existing Gazan rubble to
build roads and mid-rise housing. While Taha and PBA
Chairman Mohammed Yazgi gave rare praise to the PA for its
efforts to curb violence and streamline procedures on the
Gazan side of Karni terminal, Khoudry alleged that the
Ministry of Civil Affairs has distorted the distribution of
one-year "businessman permits," giving the cards to
colleagues and personal friends of Ministry officials who do
not qualify under the criteria agreed to by the GOI and the
PA. End summary.



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Freedom of Movement Still Primary


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2. (C) While Gazan private sector contacts continue to
profess ignorance of most aspects of disengagement planning,
many are keenly aware of GOI-PA coordination on border
crossings, arguing that the crossings regime will make or
break the Gazan economy. Hanan Taha of PalTrade told Econoff
July 27 that because Gaza,s local market is relatively
small, the post-disengagement economy will be almost solely
dependent on increased exports of agricultural produce,
furniture, and textiles to the West
Bank and EU countries, requiring GOI guarantees on the free
movement of goods out of the Strip. Housing engineer and
board member of the Palestinian Business Association (PBA)
Jawdat al-Khoudry (please protect) concurred, arguing that
while "everyone" from the donor community to Israeli
economists have predicted that the Gazan construction sector
will boom immediately following disengagement, growth could
be significantly hampered if companies are unable to import
aggregates and potential investors are not
assured that their materials and personnel will be able to
move freely.



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"Lockdown" Threatens Business


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3. Taha argued that what she termed the recently tightened
closure regime has weakened the private sector and rendered
it unable to prepare for possible lockdown of the Gaza Strip
during withdrawal. "We don,t know whether it will be for
two days or two months, and nobody can stock up on supplies
because of the closures," she explained. While Israeli
products and Gazan exports now often move through Karni
terminal in under three days, several contacts noted that
West Bank imports are still regularly delayed for two weeks
or more. PBA Chairman and 7-Up Gaza CEO Mohammed Yazgi said
that the closure at Abu Kholi junction, now entering its
third week, has cut him off from the Rafah and Khan Yunis
markets that comprise over 40% of Pepsi sales, and Khoudry
pointed out that the price of a ton of imported construction
aggregates has risen to USD 10, more than triple global
market price. Any additional measures could "destroy" the
economy, Khoudry continued, causing thousands of layoffs at a
crucial time. To ensure the survival of private enterprise
during the lockdown period, he said, it is imperative that
Karni terminal remain functioning at least at its current
level, and that Erez reopen for Palestinians at least 1-2
days a week.



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Politics Has No Place in Crossings Discussions


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4. (C) Taha expressed her concern that the GOI-PA
negotiating teams are getting stuck on divisive issues with
regard to crossings, asserting that the Gazan private sector
"does not care about the politics of the crossings" as long
as Gazan exports are assured. On door-to-door cargo
transport, she said that she understands GOI reservations
about Palestinian trucks inside Green Line Israel and
believes the PA should accept free-circulating trailers,
which will sufficiently address private sector needs. (Note:
The GOI and the PA sides have both accepted, in principle,
the long-term goal of door-to-door movement, with both sides
still discussing how to improve the back-to-back system in
the interim. Such an improved back-to-back system may
involve the use of trailers and containers that can move
between the West Bank, Israel, and Gaza, with new truck cabs
hooking up to the trailers at crossing points. End note.)
Khoudry concurred that "for business, there are no conditions
on whether the link to the West Bank is a train or a sunken
road -- any passage is a good passage." Khoudry claimed that
real estate prices in Bayt Hanoun have already increased
nearly 70 percent, thanks to a rumor that the link will
originate there.



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Gaza is Ready for Rubble


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5. (C) Khoudry said he fears that the GOI, the PA, and the
donors are only willing to consider removal of rubble from
the demolished settlement houses to Egypt, despite the fact
that it could require up to 80,000 trips and cost some USD 80
million. In conjunction with the German consulting company
GTZ, the PBA compiled a report on how to combine settlement
rubble with approximately 10 million cubic meters of
already-existing rubble generated by IDF incursions and
Intifada activities. "Existing Gazan rubble
and settlement rubble should be viewed as one problem with
one solution," he said, explaining that it could be used in
road and mid-rise housing construction, potentially creating
thousands of jobs in the short term. (Note: World Bank
country director Nigel Roberts told Emboffs July 28 that
light demolition of the houses could leave up to 77 percent
usable rubble, and that PA Civil Affairs Minister Dahlan
agreed in principle to employ this in construction. End
note.)



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Private Sector Contacts: PA Fighting Terror,
Misusing Business Permits


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6. (C) While private sector contacts have in the past been
quick to blame Gazan economic woes at least in part on PA
inefficiencies, recent discussions have yielded praise for PA
efforts in the run-up to disengagement. Yazgi emphasized
that the PA is "very serious about closing the door on
terrorism," and argued that PA President Abbas has been
unable to deliver quality-of-life improvements to
Palestinians because the GOI has not yielded on any key
humanitarian issues. Taha credited the PA with shortening
wait times for Gazan exports at Karni, citing a new system
that allows representatives from sectoral unions to submit
shipment coordination requests to the Ministry of National
Economy three days in advance. This procedure enables
greater accountability and consistency than the old system,
she explained, in which representatives dealt directly with
the security services on the ground at Karni, a process open
to inconsistencies and potential corruption.



7. (C) Khoudry (please protect) countered these positive
assessments, however, claiming that Deputy Minister of Civil
Affairs Naser Sarraj had distorted the process by which Gazan
Palestinians receive "businessman cards," one-year permits
enabling regular entry into Israel and expedited passage
through Erez crossing for qualified business leaders.
Khoudry claimed that Sarraj, with the blessing of Civil
Affairs Minister Dahlan, provided dozens of cards to personal
friends and contacts, including "journalists, a UN employee,
a mid-level PA employee, doctors and dentists in private
practice, and colleagues' wives" with unclear connections to
businesses inside the Erez Industrial Zone, none of whom
qualify for the cards under the criteria agreed to by the
Israeli MoD and the PA. Khoudry said he confronted Dahlan,
who reportedly called these examples "small mistakes" and
argued that he did not have the capacity to follow up.

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