In Gaza

On 25 August, Israel put an end to Gaza’s single most impressive feat of underground engineering. For the three days the tunnel was operational, traders were able to make use of the first fully functioning road in and out of Gaza since Israel imposed its siege after Hamas’s electoral victory. The tunnel was cavernous, built to last, and had ramps allowing vehicles to drive in and out. Its sides were fortified with scrap iron taken by Gazans when, one winter day in 2007, they pulled down a small part of the eight-metre-high wall Israel had erected along much of Gaza’s 14-kilometre border with Egypt.

Israel has recently targeted at least 13 tunnels, and Egypt has destroyed several more. The rain has caused others to collapse. This, and the fear of sabotage, has meant that the overall number in use has declined by perhaps two-thirds, to about 250. Those that continue to operate are buried deep and are more than a kilometre long. The pulleys operating at the mouths of most of the many Colditz-like escape shafts along the Egyptian border are still whirring. Gazans are still taking delivery of new cars, though now they are disassembled in Egypt before being smuggled through.

The tunnels aren’t hard for the Israelis to find. Once the entry points to the tunnel mouths were concealed in Rafah’s private homes. Now they are in the open, at best hidden under white sheeting, with delivery vans parked alongside in clear view of Israel’s electronic eyes in the sky. Before the bombing began, people loading goods into the tunnels would call out salutations to the Hamas forces patrolling the sandy length of the border, and sometimes to the Egyptian guards in their look-out posts 50 or so metres away. Almost everyone has an interest in the tunnel economy: Egyptians, from the top dynasts to the lowliest guards, pocket copious baksheesh for letting the traffic through; Hamas gets a handsome cut; Israel can use the existence of the tunnels as an excuse (not the only one) to try to palm responsibility for Gaza onto Egypt; and ordinary Gazans can find food in the shops and a little relief from the siege.

The siege has generated a huge demand for goods that can be brought in through the tunnels. After Hamas’s takeover in June 2007, Israel’s Defence Ministry reduced its list of humanitarian items allowed to enter Gaza to 34 – flour but not yeast, sugar but not coffee or tea. (‘Pasta,’ a querulous John Kerry asked senior Israeli officials after visiting Gaza, ‘what’s wrong with pasta?’) The shortages were biting, particularly after Israel destroyed or damaged tens of thousands of homes, schools and government buildings in its 22-day campaign last winter.

International appeals for lifting the siege fell on deaf ears (though Israel did agree to allow in pasta). In March 2009, donors gathered in the luxury resort of Sharm al-Sheikh across the Egyptian border, and pledged $4.4 billion towards Gaza’s recovery. But when Israel refused to let the aid in, politics got the better of humanitarian concern, and Western governments quietly repocketed their cash.

Gazans were left to fend for themselves, and with ingenuity, resilience and a well-honed sense of survival they have. Driven by pent-up demand, the few dozen tunnels that had been in operation before Hamas’s takeover increased to many hundreds, employing 10,000 workers; some that already existed were discarded, others upgraded with air-conditioning and even a makeshift railway. Hamas says it has disbursed $50 million in compensation to families whose homes were damaged or destroyed in the war. UN agencies say they have disbursed $40 million, and plan to distribute $40 million more. Gazan shopkeepers began filling the space once occupied by Israel’s exports with goods in Arabic packaging. Cigarettes and chocolate reappeared in Gaza’s markets, then clothes, shoes and mobile phones. Laptops followed and then larger household appliances such as fridges, washing-machines and 42-inch plasma TVs.

Huge rolls of paper – a metre high – rolled in to supply Hamas’s daily newspapers. Livestock arrived too, particularly before religious holidays, with sheep, which walk in a straight line when told to, being preferred to the more obstinate cows. A live lion was somehow dragged through for a clan seeking to intimidate its neighbours. Then came transport: the took-took, the Gazan name for the rickshaw, and then cars.

According to World Bank officials, 80 per cent of Gaza’s imports currently come through the tunnels. Once black-market smuggling had turned into Gaza’s formal trade, Hamas inspectors began to impose controls and licensing fees. Some tunnel merchants now operate a telephone order service and send out catalogues: office equipment ordered by phone arrives in 48 hours. ‘Goods move faster now than when Rafah terminal was open,’ a businessman told me. With the rise in trade, prices have fallen. Egyptian goods cost less than Israel’s, sometimes even after Hamas and the smugglers have taken their cut. Petrol is half its pre-siege price.

There are precious few macroeconomic data on the effect all this is having. ‘For us Gaza’s a bit of a black hole,’ a World Bank economist reliant on Ramallah’s figures admits. Even so, he says, unemployment rates in May dropped 3 per cent from a high of 32 per cent. ‘My tiler’s gone underground,’ a UN civil servant complained to me: he couldn’t compete with the tunnel smugglers, who pay four times the £12 daily wage he was offering.

More tangible signs of recovery can be seen among Gaza’s numerous money-changers, who help smugglers launder their earnings. The weight of a million dollars in hundred dollar bills to the nearest decimal point trips off their tongues. In June, the Gaza-based Bank of Palestine doubled the size of its trading rooms, which are linked electronically to Nablus, Cairo and Dubai stock markets, and installed rows of plasma screens. With investors keen to park their profits, share-trading volumes doubled in a year, and this summer the Bank of Palestine share price reached an all-time high. Traders who used to go home at lunchtime now stay till four.

There are other informal routes along which Gazan money passes, including, for a time, through the hands of the owner of an egg stall in Bureij refugee camp. For almost a year, Gazans sought out Ahmed al-Kurdi among the chicken coops which spill out onto the street at the eastern end of the market. He acted as front-man for a nebulous group of clerics, politicians and businessmen who had devised a tunnel investment scheme that offered fantastic returns. Investors from the camp say that at the scheme’s peak they were getting a $500 return every two months on every $1000 invested.

The investment seemed a good bet, particularly when Israel agreed to stop bombing as part of its June 2008 ceasefire with Hamas, and al-Kurdi’s Hamas connections underwrote the scheme. Hamas’s legal experts took the view that the fund’s regular instalments did not constitute interest, and thus that it was not un-Islamic, and where prayer leaders went, their flock followed with money of their own. One cleric in Bureij camp even doubled as a broker. There were reports of Gazans selling their bridal trousseaux, their cars, even their houses to raise cash. By the end of 2008, according to a Hamas-run parliamentary inquiry, Gaza’s 1.5 million people had invested US $400 million in the scheme.

As profits grew, the camp’s crowded streets filled with four-by-fours. Toyota pick-ups doubled in value. New restaurants opened in Gaza City, and were usually packed. One, Green Acre, was run by a graduate of a Barcelona hotel management course, and had a Spanish theme with Corte-Inglés beams and whitewash. Al-Samak, a fish restaurant in southern Gaza, was decorated with designer tiles. After dark, Gaza City’s beachfront began to sparkle with refurbished hotels and new chalets. Jawdat al-Khudairy, Gaza’s answer to a jolly Victorian publican, opened an archaeological museum, al-Mathaf, with a large and fashionable café alongside; it has wooden lattice ceilings and finely tiled verandas. After last winter’s war, he repaired the holes that Israel’s artillery shells had punched in the walls and displayed his now broken biblical jars as shards. He also began work on a hotel, starting with a presidential suite. Even Israeli businessmen have sought a share in all this. Shlomi Fogel, a confidant of Binyamin Netanyahu, dreams of re-creating Dubai’s Palm Jumeirah on the Mediterranean, with accommodation on its branch-like promontories for 600,000 people.

All this activity remains highly vulnerable to continued Egyptian and Israeli pressure and barely compensates for the destruction of Gaza’s manufacturing and agriculture sectors. According to the Gaza government’s figures, Israel destroyed 700 factories and workshops, 1500 shops and 10,000 dunams of farmland. Some businessmen have successfully turned to service industries less vulnerable to bombs, and now produce mobile phone ringtones for the Gulf market. When I visited the economy minister’s office a few months ago, queuing with me to see him were two designers bearing a sanctions-busting homemade contraption for generating cooking gas, fashioned from an air-conditioner, a pipe and a stove.

The changes are largely lost on Gaza’s few foreign delegations, most of which represent countries that support the Palestinian Authority in its beauty contest with Hamas. ‘The international community wants to see Gaza as a place of destruction, poverty and misery,’ al-Khudairy laments. ‘No one wants to reveal its potential for hope.’ Nor is it only Hamas’s detractors who run Gaza down. Aid workers rely on the strip remaining a basket-case to attract donors, and Hamas leaders highlight suffering to generate global solidarity.

Islamists may also feel less than comfortable with the incongruous signs of their new-found riches. Thanks to rising tunnel revenues, Hamas established an insurance company, al-Multazim, and then, in January, a bank, and is buying up much of Gaza’s real estate after prices hit rock-bottom early on in the siege. The interior minister has sought to outshine Israel’s settlers with an agricultural project to make the former settlements not only bloom but glimmer: he has opened a freshwater fish farm. Even the religious affairs ministry, the Awqaf, is acquiring economic interests, setting up textile factories to manufacture jilbab, the barrel-like garb for modest women it has launched a poster campaign to promote. ‘Arafat was smart when he said he wanted to turn Gaza into the Singapore of the Middle East. We are trying to succeed where he failed,’ says Mezan Abu Amarneh, a middle-ranking Hamas operative in Rafah whose front room is decked with portraits of his eldest son, a Hamas bodyguard killed by Israel. ‘The siege is a blessing in disguise. It is weaning us off of Israel, and helping us help ourselves.’

Some are horrified by Hamas’s postwar pursuit of revenue over resistance. ‘This is not the old-style radical movement,’ one Gazan economist says. ‘Hamas is becoming a business venture.’ As well as directly operating some tunnels itself, the Hamas movement, not the government, supervises all the others, and collects hefty duties on imports. The authorities get the crumbs, earning 10,000 shekels (£1700) per tunnel for a licence allowing the provision of electricity and water. Tension between government and the movement affects decision-making. While government officials campaign for the lifting of the siege, Hamas operatives in Rafah have a financial stake in keeping the tunnel traffic moving.

The collapse of the tunnel investment scheme accentuated the tension. Swamped with cash, the fund’s managers invested the excess in capital markets abroad, and as stock-markets crashed around the world, began doling out premiums from existing deposits. The scam was exposed when Israel bombarded Rafah’s tunnels in last winter’s war, precipitating a run to recover deposits which the scheme’s managers couldn’t meet.

When, in May this year, the security forces tried to sequestrate the managers’ assets they found the fund largely empty. Some brokers reportedly escaped to Egypt; those in the Bureij camp were held under house arrest, not least for their own safety; others were detained. Investors turned to the authorities for redress, but found little help. Hamas offered payouts of 16.5 per cent of their investments, on condition that recipients renounced all legal claims and recourse to clan justice. In an editorial, Mustafa Sawaf, the editor of the Hamas daily Filastin, said investors had been aware of the high level of risk, and should be grateful for even minimal compensation. Dissent was suppressed. Hamas barred Islamic Jihad’s Al-Quds Radio from airing a debate on the scam, and investors from protesting outside parliament.

To silence criticism, it promised an inquiry, which eventually blamed the authorities for lack of regulation. ‘Hamas as the ruling authority bears responsibility for tolerating the scheme,’ a member of Gaza’s parliamentary monitoring committee reported. Elsewhere, the crackdown sparked criticism of Hamas’s role in propagating the scheme and creaming off its profits. Six judges, appointed by Hamas, tendered their resignations (which were declined) after coming under official pressure to release suspects. Major Hamas institutions, including the Islamic University, the movement’s intellectual hub, and its prime welfare association, al-Salah, are said to have lost millions.

The effects are visible. This year’s Ramadan, normally the season when Hamas lavish alms, was a particularly subdued affair. Decorations were largely absent, apart from a sad solitary row of fairy lights drooping across Gaza City’s Palestine Square. In September, Hamas paid salaries late for the first time and withheld higher rates, something that hadn’t been necessary even during the winter war.

All this has fed growing criticism of Hamas for putting its own interests before Gaza’s. While a new entrepreneurial class dines in restaurants, four out of five Gazans, the UN reports, live in poverty; 20,000 war victims are still displaced. Gazans in rural areas continue to scavenge for basics, and mercantile families have begun to collect UN food rations. Short of gas, old men bent double haul bundles of wood. It’s not just the loss of their savings: Gazans complain that their leaders sheltered underground during the war, leaving their people exposed to the shelling.

The crisis will not shake Hamas’s grip. But it is looking less secure. Rival Islamist groups have used the discontent to recruit members, and criticism has led to clashes. By night, and sometimes by day, Hamas erects checkpoints in downtown Gaza. Family feuds, hitherto repressed, have begun to resurface. In a further echo of a Fatah past, Hamas has raided mosques and killed Islamist ‘deviants’, at times even presenting itself as a bulwark against extremism. Bombs have exploded outside military bases. And though Ismail Haniya – unlike previous Gazan leaders – continues to live in a refugee camp, when he drives around Gaza security forces line the route.