C O N F I D E N T I A L JERUSALEM 002611

SIPDIS

SIPDIS

NEA FOR FRONT OFFICE; NEA/IPA FOR
WILLIAMS/GREENE/WATERS/WAECHTER; NSC FOR
ABRAMS/DORAN/LOGERFO; TREASURY FOR NUGENT/ADKINS

E.O. 12958: DECL: 06/22/2016
TAGS: ECON PREL KWBG KPAL IS
SUBJECT: PALESTINIAN COMPANIES LEAVING THE WEST BANK AND
GAZA

REF: GMP20060619741002

Classified By: Consul General Jake Walles, Reasons 1.4 (b) and (d).


1. (C) Summary: Some Palestinian companies are moving their
production facilities from Gaza and the West Bank to Egypt
and Jordan, according to Palestinian businessmen, on account
of frequent and prolonged closures of the Karni/al-Mintar
crossing and limited throughput. Due to non-payment of
Palestinian Authority (PA) salaries, many Palestinian
consumers are choosing to buy cheaper, low-quality goods from
other countries. Palestinian businessmen also report that
their Israeli partners are urging them to relocate outside
Gaza. End Summary.

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Industry Exodus
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2. (SBU) Palestinian Federation of Industries Deputy
Chairman Sameh al-Khouzendar, in a June 18 press statement,
warned that Palestinian industrial companies are fleeing in
search of better business conditions in Jordan and Egypt.
Fifty textile factories have re-established their production
facilities in Jordanian and Egyptian qualifying industrial
zones (QIZ), he said. Textiles in Gaza, once employing
40,000 people, had been the hardest hit, followed by the
furniture manufacturing sector.


3. (C) Khouzendar blamed this trend on the closures at the
Karni/al-Mintar crossing, which have created high
transportation costs. He also pointed to lower disposable
income, a result of unpaid PA salaries; outstanding PA debts
to the private sector (Note: valued at USD 650 million); and
donors canceling or suspending projects. Economic losses
have also translated into brain-drain, as family-owned and
operated businesses are relocating, taking with them
experienced senior managers and well-qualified family
members.

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Lost Market Share
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4. (SBU) In a local press article on Khouzendar's statement
(reftel), President of the Wood Industries Union (Gaza)
Hisham al-Uwayni stated that only five percent of the
furniture factories and workshops in Gaza at the end of 2005
were still operating. He said that the wood industries
sector in Gaza once employed 6,000 workers but now employs
fewer than 1,500 workers. Uwayni described how Israeli
importers of furniture had turned to China and Turkey for
cheaper and lower quality products. Concurrently,
cash-strapped Palestinians are choosing to buy these goods,
rather than Palestinian-made furniture, which had become
expensive on account of the high costs associated with
transporting raw material inputs across the checkpoints into
Gaza.

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Same Business, Different Country
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5. (C) Development Alternative Inc. (DAI) economist Said Abu
Hijleh told Econoff June 15 that Israeli companies have
recommended relocation to their Palestinian counterparts.
Unable to receive consignments from their partners in Gaza
while watching just-in-time orders to onward customers go to
competitors, the Israeli companies see the advantage of
helping Palestinian companies maintain their business ties,
but from a more favorable location. Khouzendar told
EconSpecialist June 22 that Israeli companies prefer Jordan
as a new base for their Palestinian business contacts,
because it is easier for Israelis to go there.
WALLES