Sept. 11 (Bloomberg) -- Muhamed Musa used to save more than $2,000 a month buying goat feed smuggled into Gaza, until an Egyptian offensive shut the crawlways and forced him to import from Israel at a higher cost.
Sales at his farm-supply shop have dropped by half, as he joins the butchers, builders and others in the Hamas-ruled Gaza Strip struggling with the economic jolt caused by the toppling of Egypt’s Islamist government, the Palestinian territory’s patron.
“If the crisis in Egypt continues and the tunnels stay closed, we’re in real trouble,” said Musa, 55, sipping coffee with a few customers outside his Gaza City store.
Mohamed Mursi’s election as Egypt’s president last year threw open doors to Hamas, an offshoot of his Muslim Brotherhood group that the U.S. and European Union shun as a terrorist organization. His July 3 ouster by the military snapped the doors shut again. Egyptian forces have since demolished tunnels on concerns militants use them to attack security personnel in the Sinai peninsula.
Hamas Minister of Economics Ala al-Rafati said about 600 tunnels operated in the sandy soil of the border zone before Egypt went on an offensive on June 30, the day protests against Mursi erupted, leading up to his overthrow.
“Due to the ongoing Egyptian security campaign, 95 percent of the tunnels are inoperative,” Rafati said in a telephone interview. “This has caused severe losses to the Gaza Strip economy.” He put the losses at $460 million, or 18 percent of the territory’s gross domestic product.
The destruction of this economic pipeline has deepened the hardship in the territory of 1.7 million, where six of every 10 people live on less than $2 a day, according to United Nations statistics.
“The political upheaval in Egypt has battered the Gaza Strip economy and crippled manufacturing and agriculture,” said economist Hamed Jad, who writes for the Ramallah-based Al-Ayyam daily newspaper.
Gaza, a 40-kilometer (25-mile) sliver of Mediterranean coastline, came to rely on a smuggling network after Israel and Egypt blockaded it to squeeze Hamas, which took control there in 2007 and split from Palestinian Authority President Mahmoud Abbas. Even after Israel eased its embargo in 2010, tunnels kept operating because the Israelis didn’t let everything in and smuggled goods were cheaper.
For Hamas, the tunnels were a bonanza. Barred from foreign aid to the Palestinians for refusing to renounce violence against Israel, it slapped taxes on the smuggled goods. Its government earned 40 percent of its revenue from those levies, the Hamas-run Ministry of Finance said on its website.
Though Egyptian forces would shut tunnels under Mursi, sometimes flooding then with raw sewage, his downfall freed the military to act more forcefully as assaults multiplied. Twenty-five police were killed in an ambush last month.
The supply of fuel and construction materials has been “sharply reduced,” Deputy Economy Minister Hatem Ouwida said at a Sept. 9 news conference in Gaza City.
Passenger traffic through Egypt’s northern border with Gaza, which increased under Mursi, has also been tightened because of instability in Sinai. According to Gisha, an Israeli human rights group, 11,449 people exited the Rafah terminal for Egypt in July and August, 72 percent fewer than the monthly average for the first half of 2013.
Passenger Traffic Squeezed
Egypt shut the passenger terminal at Rafah today after a deadly bombing at an intelligence headquarters in northern Sinai, Gaza’s Interior Ministry said in a statement. Six soldiers were killed in the attack, the Egyptian military said.
While Mursi never gave Gaza the full freedom of movement it sought, his ascent to power did break down barriers. The emir of Qatar gave Hamas unprecedented political recognition in October as the first foreign head of state to visit during its rule. He capped the trip pledging more than $400 million to build houses, a hospital and roads.
Much of the diplomatic capital has since evaporated. Qatar hasn’t been able to get construction materials across the Egyptian frontier into Gaza since Mursi’s ouster, according to Zeyad Zaza, the Hamas government’s deputy prime minister.
Hamas is “under extreme political pressure,” said Mukhemer Abu Sada, a political scientist at Al-Zahra University in Gaza City. “Their allies are being weakened and they are seeing themselves increasingly isolated.”
The renewed isolation hits especially hard because Hamas can no longer rely on traditional patrons Iran and Syria. Relations soured after the Palestinian group quit its Damascus base to protest Syria’s deadly crackdown on opponents.
In its attempt to contain militant activity in Sinai, Egypt’s military is also tightening cooperation with Israel, which also has been attacked from the territory, bordering its southern flank.
An Islamist group said an Israeli drone strike killed four of its militants in Sinai this month. While Egypt said its air force, not Israel’s, carried out the attack, either version would exceed the limits to military operations in Sinai laid down in the two sides’ 1979 peace accord.
The hardship may also be fueling more discontent. A Gaza-based group modeled on the Tamarod movement that led the grassroots drive to get rid of Mursi has shown up on Facebook, saying it plans rallies against the “injustice” of Hamas rule. “I don’t think there is a need to comment on this nonsense,” Interior Ministry spokesman Islam Shahwan said.
In the meantime, things look bleak for tunnel operators such as Abu Emad, who employed 30 people importing sheep, calves and cleaning supplies.
“I miss the good old days when we were working round the clock,” he said, sitting near the mouth of a demolished 350-meter tunnel. “I don’t believe Egypt’s going to let us operate again.”
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