GAZA'S WOOD AND FURNITURE INDUSTRIES STARVED OF

C O N F I D E N T I A L SECTION 01 OF 02 JERUSALEM 000224 SIPDIS SIPDIS NEA FOR FRONT OFFICE; NEA/IPA FOR WILLIAMS/SHAMPAINE/STEINGER; PRM FOR PDAS GREENE AND PRM/ANE; NSC FOR ABRAMS/DORAN/WATERS; TREASURY FOR SZUBIN/LOEFFLER/NUGENT/HIRSON; BRUSSELS FOR LERNER; PLEASE PASS TO USAID FOR KUNDER/MCCLOUD/BORODIN E.O. 12958: DECL: 02/01/16 TAGS: ECON ETRD EIND EAID KWBG IS EG SUBJECT: GAZA'S WOOD AND FURNITURE INDUSTRIES STARVED OF INPUTS, DEPRIVED OF EXPORT MARKETS REF: 06 JERUSALEM 5056 Classified By: Consul General Jake Walles, Reasons 1.4 (b) and (d) ¶1. (SBU) Summary. Restricted throughput at the Karni/al-Mintar crossing has deprived Gaza's wood and furniture manufacturing sector of raw materials, driven up transportation costs, and severely limited access to the industry's sole export market: Israel. Industry representatives say about 100 factories have closed and most of those remaining are operating at less than 50 percent capacity. Exports fell 64 percent in 2006. One the largest factories relocated to Egypt to continue exporting to Israel. Industry representatives are seeking renewed USAID support in developing access to U.S. and other markets. End Summary. ¶2. (SBU) Members of the Wood and Furniture Industries Association (WFIA)(established with USAID assistance) and the Palestinian Federation of Industries (PFI) in Gaza described to ConGen and USAIDoff during a January 31 DVC the negative impact of limited operations at the Karni/al-Mintar crossing. Highly dependent on access to the Israeli market, the industry is collapsing. -------------- Sector in Decline -------------- ¶3. (C) WFIA Chairman Hisham Al-Iwaini stated that about 100 of Gaza's 600 wood and furniture establishments have closed in the past year. About 400 are operating at 50 percent capacity or less. Industry exports to Israel stood at 1,198 truckloads in 2005, but fell to 429.5 truckloads in 2006, a 64 percent drop. Al-Iwaini asserted that the sector is capable of exporting at least 3,000 truckloads per year. -------------- Imports Down and Prices Up -------------- ¶4. (C) Ziyad Al-Amassi of Al-Amassi Brothers Company said that most of the furniture factories temporarily shut down the previous week because a large shipment of wood stain failed to arrive through Karni/al-Mintar crossing. Shortages are fueling competition for the limited resources, thus driving up prices. (Note: Imports into Gaza jumped dramatically late last year. This increase, however, is due almost entirely to the completion of a new conveyor belt system for aggregates. The volume of other imports has remained largely unchanged. End Note.) ¶5. (C) WFIA members stated that transportation costs have risen sharply because Israeli truck drivers auction off the use of their trucks and their place in the Karni/al-Mintar queue for cargoes entering Gaza. They asserted that the GOI call center established in late 2005 to manage the queue no longer coordinates with Palestinian companies or their Israeli partners but deals almost exclusively with Israeli drivers. Additional costs include storage fees at bonded warehouses while goods await clearance and storage fees incurred at other facilities until permission is obtained to enter the crossing. Al-Iwaini estimated that total transportation costs from Ashdod Port to Karni/al-Mintar easily exceed USD 1,000 per container. -------------- Exports Limited and Less Competitive -------------- ¶6. (C) Al-Iwaini said that the restrictive and unpredictable nature of crossing operations is preventing Gaza-based companies from fulfilling their contracts with Israeli customers. On one day 16 truckloads of furniture are permitted out, but the next day only four. According to WFIA members, there are days when the conveyor belt that transports the furniture through the exchange cell at the crossing remains idle for hours while furniture-laden trucks wait. Al-Iwaini said that, because of these higher costs, the wood and furniture sector is losing market share in Israel to foreign competitors, particularly those from the Far East. One of the sector's largest factories re-located to Egypt to continue doing business with its long-time JERUSALEM 00000224 002 OF 002 Israeli customers. -------------- Rafah: No Quick Fix -------------- ¶7. (C) WFIA members agreed that opening the Rafah crossing was vital to economic growth. They urged the USG to support such a move, but noted that it would not benefit their sector in the short-term due to the absence of established distribution networks and direct contacts with agents in Europe and the Gulf. PFI Secretary General Amr Hamdan described the wood and furniture sector as "a USAID success story" now at risk. Al-Iwaini praised past USG support and asked for renewed USAID assistance. WALLES