Gaza smuggling tunnel - AP
One of the hundreds of smuggling tunnels under the Egypt-Gaza border. Photo by AP
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The smuggling tunnels under the Gaza-Egypt border are the primary cause of the improvement in the Gaza Strip's economy between the first half of 2010 and the same period of 2011, a new report by UNRWA, the UN agency for Palestinian refugees, has concluded.

The report found several positive developments: job creation, falling unemployment, private-sector growth and rising wages. Nevertheless, due to its low starting point, Gaza's economy remains dismal: It has one of the world's highest unemployment rates, one of the highest poverty rates and one of the highest rates of families dependent on outside assistance. According to Oxfam, 1.1 million of Gaza's 1.5 million residents receive food aid.

Economist Salem Ajluni, who has been writing UNRWA's reports since 2006, said on Wednesday that he expects Gaza's Hamas government to claim credit for the improvements - especially since the West Bank recorded a slight rise in unemployment during the same period.

Israel's refusal to allow most exports out of Gaza remains one of the Strip's biggest problems, Ajluni said. The volume of Gaza's agricultural exports in the first half of 2011 came to only 3 percent of the level prior to mid-2007, when Israel imposed its blockade in response to the coup that brought Hamas to power. And even the pre-2007 level was low compared to export volumes in the 1990s.

But since the Egyptian revolution, the volume of raw materials, including for construction, entering Gaza via the tunnels has risen substantially. Though Israel has also begun allowing more construction material into Gaza via its official border crossings, 10 times as much cement and iron enters Gaza via the tunnels, according to the UN's Office for the Coordination of Humanitarian Affairs.

The greater availability of construction inputs has revitalized Gaza's construction industry, which had been paralyzed by the Israeli blockade since 2007. Construction is responsible for much of the past year's job creation: The industry employed 13,174 people in the first half of 2011, a 253 percent increase over 3,741 in the same period last year. Nevertheless, the construction industry is still far below its peak, employing only 5.5 percent of the labor force, down from 9.9 percent in 1999.

Less dramatic employment growth was registered in many other fields, including agriculture, commerce, hotels and restaurants. Fully 82 percent of the new jobs are in the private sector.

Nevertheless, the unemployment rate stood at 33 percent in the first half of 2011 - down sharply from 42 percent in the same period last year, but still one of the world's highest.

Moreover, refugees did not share fully in the improvement: Though constituting 70 percent of Gaza's population and 62 percent of its work force, they received only 20 percent of new public-sector jobs and 55 percent of new private-sector jobs, the report said.

Real wages rose 8.8 percent in the first half, to NIS 1,115 a month, but remained 11 percent below what they were in 2006, the report said.