Wednesday, March 17, 2010

Tunnelnomics

The economy of Gaza:
Despite the melodramatic way in which the tunnels [are] sometimes reported in the media, commercial smuggling is far from secretive. Indeed, on the Gazan side of the border it isn't really smuggling at all, but rather a more-or-less open business that is partly regulated by the local authorities. Many of the Gaza tunnels are within plain sight of Egyptian border posts, sheltered under tarps or sheds and surrounded by piles of discarded sand. The electrical connections are courtesy of Rafah municipality, to which the smugglers pay a license fee. Shops in the neighbourhood sell compressors, construction materials, and other tools of the trade.

It has become so crowded underground that tunnels sometimes run into each other, resulting in subsurface fist-fights. On the other hand, the proliferation of nearby tunnels has apparently made underground rescues easier, with the sandy soil of the area always prone to cave-ins. Many of the tunnel workers are teens, and the working conditions are far from safe. Recently, the Israeli human rights group B'Tselem distributed video cameras to Gazan youth to record their lives -- one of the most interesting videos was about life working in the tunnels.

The intense competition has brought other complications. Smugglers have been known to inform on each other when contraband shipments (like drugs and alcohol) are involved, or to pour noxious substances in the tunnels of rivals. Tunnel operators alleged to have pro-Fatah political leanings are particularly vulnerable to harassment and dirty tricks.

One interesting question is the extent to which the tunnels have reshaped Gaza's local political economy. Some argued that they have, shifting economic power south to the border area, created a new class of wealthier smugglers and merchants.

Others, however, suggest that it has had less substantial effects. With an average tunnel costing up to $100,000 to dig, tunnel operators need outside investors -- typically, from the same merchant families that long held economic power in Gaza. The same merchants might also control extended supply and distribution channels.

The investor relationship is usually at arm's length, often by mobile phone and money transfers, such that the investor and operator do not directly meet. This set the stage for a number of fraudulent schemes that came to light last summer, with Gazans of modest means investing in tunnels that turned out not to exist. Tens and possibly hundreds of millions of dollars were stolen in this way, and some suggested senior members of Hamas might somehow be implicated. The Hamas government arranged partial compensation of the victims.

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