Gaza factories remain paralysed despite Israel pledge to ease blockade

After three years of deadlock, Palestinian businesses are hoping for a better future. But some fear that the new Israeli trade rules could actually mean a fresh squeeze. Donald Macintyre reports from Gaza City

The chilled Tropika that Salama al-Kishawi proudly serves guests in his office tastes, unusually for a processed juice, of real oranges – especially refreshing on a 35C midsummer day in Gaza. But the flagship product of the Gaza Juice Factory has a significance that goes way beyond its taste.

The factory employs 65 workers and is one of very few industries to function despite the siege of Gaza imposed by Israel after Hamas seized full control of the territory three years ago this month.

How long it continues to function may well depend on just how the deal easing the Israeli blockade announced last Sunday works in practice. The future of Tropika has become a litmus test for Gaza's real economy.

In diplomatic terms, the deal negotiated between Israel and international envoy Tony Blair was a breakthrough. Israel is still refusing – apart from internationally supervised exceptions – to allow in anything, including cement badly needed for rebuilding bombed out homes, which it deems Hamas could use for military purposes.

But the announcement signified a real change of policy: in theory at least, all other goods will, for the first time in three years, be allowed to enter.

But nearly a week after the announcement, the people of Gaza, while content about the prospect of an increase in consumer goods from Israel, are demanding that the much more fundamental promise in the agreement, to allow the expansion of "economic activity", will also be honoured.

"If consumer items are allowed to come through the crossings, but at the same time we don't allow materials and the means of production to enter, that will have a negative effect," said Amr Hamad, Gaza director of the Palestinian Federation of Industries.

The Gaza Juice Factory, which is in the eastern suburb of Shajaia, in full view of the Israeli border, is a perfect illustration of the problem. Its neatly tended gardens and the bustle of forklift trucks loading the newly bundled bottles on to vans for shipment to local supermarkets testify that this is –unusually for Gaza – a going concern.

Their are tracks left by the Israeli tanks that smashed through the green metal perimeter fence during the military offensive of 2008-9, and the remains of what company boss Ayed abu Ramadan thinks must have been an Apache missile have been hung on the front wall as a memento to everything the factory has been through.

Its history is inextricably woven with that of the territory's turbulent and blood-splashed politics over the last 15 years.

An imposing plaque reminds visitors that it was opened by Yasser Arafat just two days after his triumphant return to Gaza from exile in Tunis in July 1994. The factory became a success, exporting to Egypt, the US, Europe, and Israel itself for more than a decade.

In 2006, however, the exports ground to a halt. Hamas had won the elections, the land crossings were mostly closed. By then Gaza's famous citrus groves had been almost destroyed by the Israeli military during its frequent incursions since the outbreak of the second intifada in 2000.

"Here in Gaza we have always had the best oranges in the world," said Mr Kishawi. "Now most of it has gone."

Yet the 87p bottles of Tropika on the shelves of Gaza stores today are a testament to the company's remarkable adaptability. Its managers diversified into Tropika, but also strawberry and tomato juice, along with ketchup, jam, and a popular range of candied fruits.

From being a 100 per cent exporter, the company now caters 100 per cent for the home market. And although it would have greatly preferred to buy its raw materials much more cheaply from Israel, it was obliged by the closure to bring in bottles, packaging, flavouring and colouring additives through the tunnels from Egypt, paying what Mr Ramadan delicately calls the high "subway tolls" demanded by the tunnelers to pay their own costs – including levies to the Hamas de facto government.

Scarcity of fruit was the first problem. "Last year I needed 9,000 tonnes of citrus to meet demand," said Mr Kishawi, "but I was only able to find 1,000 tonnes."

Oranges from Israel were half of what they cost in Gaza but only eating – as opposed to juicing – oranges were allowed in by the Israeli authorities.

To underline the Alice in Wonderland economics of Gaza it was also possible to import from Egypt, through the tunnels, identical concentrate to that which it used to export to Egypt. "In June 2007 I was selling concentrate at $1,350 (£900) a ton but now it costs me $4,000 a ton to bring in," explained Mr Kishawi. "Where is the competition in that?"

As if this wasn't enough, eighteen months later the factory suffered devastating damage from Israeli ground and air assaults during the 2008-9 offensive, which hit hundreds of industrial sites. The damage prompted Amr Hamad of the Federation of Industries to remark: "What [Israel] were not able to reach by the blockade, they have reached with their bulldozers."

The main tube in the juice factory's key evaporator, wrecked by a missile, was quickly repaired, but the huge, 2,000-tonne capacity freezer, along with its contents, was destroyed. Then, toward the end of last year, the firm hit another obstacle. It thought it had done a deal with Israeli suppliers to supply 500 tonnes of badly-needed grapefruit.

"But then, when they realised that it was going to a juice factory and not the supermarkets, they stopped the grapefruits coming in," said Mr Kishawi.

Two weeks ago, in the wake of the international outcry that followed the crisis over the pro-Palestinian flotillas, came the first stage of the easing of the embargo and, perversely, with it a fresh threat to Tropika. The company was happy to hear the blockade was being eased – anticipating that it would now be able to import from Israel much cheaper raw materials.

Instead, it found that it was facing new competition. For the first time in three years, Israel has permitted the entry of processed fruit juice – at the competitive price of five shekels (86p) a bottle. In a final irony (though its bosses are not sure how long this will last), the company, which is effectively owned by the Palestinian Authority in Ramallah and has a board of directors appointed by Palestinian President Mahmoud Abbas, is now depending on a lifeline from the Hamas de facto government. It has issued a protectionist warning to traders not to order processed juice from Israel.

The company has already preemptively reduced Tropika's own price, from six to five shekels a bottle, and would have no problem competing with the Israeli product if it was also to import the much cheaper raw materials available in Israel. "If we have a truly open market we can compete with anybody, including Israel," says Mr Kishawi.

Underlining the present imbalance, however, the company's chief buyer, Haitham Kannan, says: "Israel can produce a bottle of juice for around 25 cents – which is what the plastic bottle alone costs us."

As his boss, Mr Ramadan, puts it: "This is like tying someone's hands up and telling him to get into the boxing ring. After everything we have been through – closure, war, shortages, it would be crazy if we lost the business now."

Yet the Gaza Juice Factory is still – for now – operating. More typical is the fate of the Aziz Jeans factory on the edge of the Jabalya, eerily silent now, four years after it was alive with the din of 100 employees stitching teenage fashion jeans for the Aziz family's appreciative Israeli business partner.

Able neither to import the fabric or, even more importantly, export the finished jeans, the firm, like many hundreds of others, came to an abrupt halt almost immediately the blockade began.

Its highly skilled workforce dispersed – "a lot", according to Aziz Aziz, on to the Hamas payroll. The last time The Independent was here, Mr Aziz had generated a modest income by assembling electric plugs – but the competition of ready-made plugs smuggled though the tunnels made this a hopeless task.

Mr Aziz says that if the big Karni cargo crossing terminal – through which he and his brothers used to import denim and export the finished garments – was re-opened, he would bring his sewing machines back out of storage and be ready to start the factory rolling in a week.

Mr Aziz is no friend of Hamas, and would like a change of government in Gaza. But he adds that by maintaining the blockade – including on exports – over the past three years, "Israel has to know that it is not besieging Hamas; it is besieging the people of Gaza".

That view is now the consensus in the international Quartet. Israel is still resisting, on security grounds, the reopening of Karni, relying instead on an expansion of the much more limited Kerem Shalom crossing's capacity.

Most experts are convinced that Karni will have to be reopened if any semblance of Gaza's previously productive manufacturing capacity can be restored.

Nevertheless, the promised expansion of Kerem Shalom would be a modest start if it happens – provided Israel is also ready to allow exports to resume.

Israel itself is facing conflicting pressures; the fourth anniversary yesterday of the incarceration of abducted sergeant Gilad Shalit, still being denied even Red Cross visits – on the one hand, and the prospect of more pro-Palestinian flotillas on the other.

But without a jolt for Gaza's collapsed economy, Israel risks being seen as using Gaza as a captive market for its consumer goods while doing little or nothing to get people back to work.

Sari Bashi, director of the Israeli human rights agency, Gisha, said this week she was "mildly encouraged" by the explicit mention of "economic activity" in this week's government statement, but warned that this would not happen "unless Karni is opened and exports are allowed".

She added: "Israel has to abandon its policy of economic warfare and accept that it has failed."

How the blockade is changing life in Gaza

The number of trucks bringing goods from Israel into the Gaza Strip each day has not yet increased, according to Palestinian coordinators, but the range of goods – including books and children's toys, long banned – has.

At Hazem Hasuna's supermaket in Gaza City's western Rimal district, Egyptian razors, smuggled in through tunnels, were summarily replaced on Thursday by Gillette Fusion razors legally imported from Israel. But the comprehensive range of smuggled goods has made some Gazans cynical about the new imports. "Nothing has really changed," said Mr Hasuna, 38, "People haven't been missing ketchup and mayonnaise [two of the newly permitted products]. The only real change will be if they start bringing in cement for reconstruction and what the factories need to give people work."

One of his customers, Rasha Farhat, 33, was asked by her Saudi-based relatives, who came to visit after the opening of the Rafah crossing this month, what she needed. "I told them 'nothing'." She added that, thanks to the tunnels, "we have never had as many products as we have now".

Up to a point. Although still active, the tunnels have shown a sharp drop in activity in the past two weeks as wholesalers wait to assess the new blacklist of security sensitive goods Israel has promised to substitute over the next week for its heavily restrictive "permitted" list as part of the new "liberalising" imports regime.

Acknowledging that Gazans have become used to "tunnel products" over the past three years, a prominent Gaza economist, who preferred not to be named, said: "Of course Israel is capable of saying one thing and then acting differently. We will have to wait to see what are the consequences of the new policy." But confessing that he had just filled his own car with Israeli diesel in preference to Egyptian, he added: "Palestinians have been receiving Israeli goods for 40 years. They regard products from Israel as extremely high quality compared with their Egyptian equivalents."

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