A catastrophe for contractors. That is how Mike Salman, general secretary of the Palestinian Contractors Union, describes the cessation of funding from the main donors of the Palestinian Authority (PA), the US and the EU. “It was not very healthy before, but since the aid cuts, it is much worse,” he says. The construction industry has borne the brunt of the cuts with work stopped on many of the projects that relied on US and EU finding.

Mainly affecting infrastructure projects, such as roads and schools, the funding cut has not only hurt Palestinian development, but placed at risk one of the most important industries in the already fragile economy. Estimates indicate construction is responsible for providing 23 per cent of gross national product (GNP) and jobs for 28-30 per cent of the local labour force. Although Public Works & Housing Minister Abdul-Rahman Zaidan says the figure might be slightly exaggerated, there is little doubt that the construction industry is a vital source of work. As unemployment is already well above 25 per cent and the PA, the biggest employer, approaches bankruptcy, a deeper construction slump will be disastrous.

Even contractors not associated with the PA have been hurt by the withdrawal of the funding. Zaidan says work had already begun on a “vital” US Agency for International Development (USAID) – funded project to renovate the 1.5 kilometre -long road section at the southern entrance to Ramallah – a long-neglected traffic hot-spot. However, according to Zaidan, the funding has been frozen even though the job was based on a direct agreement between the client and contractor, with the PA acting only as a mediator.

Back door

One solution has been for other international donors to bypass the PA. For example, the UN Development Programme (UNDP) already carries out the vast majority of its work through so-called “direct execution” – dealing direct with the contractor. However, Zaidan claims this move is also damaging. “This is inconvenient for us,” he says. “NGOs {non-governmental organisations} are helpful, but they only have a limited experience of the sector. They do not have the scope to do everything effectively. It also raises problems for Palestinian governance by diminishing the political transparency of the process.”

Palestinians are among the best educated in the region and, in theory, there should be no shortage of engineers ad other essential professionals. However, one effect of the construction slowdown is the likelihood of a “brain drain”. Zaidan admits some engineers have already left to work abroad and Salman fears Palestinians could see a “wave of emigration”. Salman is also concerned about a trend for local companies to move their headquarters abroad and register in Dubai, for example. “I think many companies will invest out Palestine, if this situation continues,” he says.
However, Zaidan claims the situation for contractors is not hopeless. “There are still tenders going out, mainly for roads and houses wholly or partly demolished by Israeli forces and these go mostly to local contractors,” he says. “The characteristic resilience of the Palestinians should keep the industry going,” he adds. “We are accustomed to hardship and there is no sense at the moment that this is the final difficulty we will face.”