RAMALLAH, West Bank, Jan 9 (Reuters) - Business for leading Palestinian sweets maker Silvana turned sour when its key partner pulled out in frustration at deliveries increasingly thwarted by Israeli military blockades.
Silvana's subsequent suspension of operations underlines a widespread collapse of Palestinian industry under the weight of Israel's reoccupation of much of the West Bank in response to Palestinian militant violence in pursuit of statehood.
"It is hard to give figures on losses now as we cannot reach factories in some areas of the West Bank and Gaza because of Israeli military closures. We can say losses are really, really high -- many millions," said Palestinian Economy Minister Maher al-Masri.
Although industry made up a relatively small 18 percent of Palestinian Gross Domestic Product before the 27-month-old uprising, its decay has alarmed Palestinians because factory production embodied the potential for a modern economy key to a viable state.
Prevented by army closures and curfews from getting products to markets, a third of the factories -- turning out a range of goods from shoes to mineral water and farm tools -- have shut down and many others have downsized.
This has resulted in almost half the industrial workforce being laid off.
Agriculture and trade, which together comprised the bulk of the $4.7 billion GDP in 2000, have also been slashed by Israel's clampdown. GDP has plunged to about $2 billion since Israeli-Palestinian violence began.
Silvana, among the biggest Palestinian manufacturers and the dominant local producer of chocolate and other sweets, collapsed when the al-Asbah firm cancelled a five-year $500,000 contract to manage Silvana's Ramallah plant and deliver its products.
Al Asbah, among the biggest heavy trucking firms in the Palestinian territories, became the family-run Silvana's partner just weeks before the Palestinian revolt flared.
Hosam al-Omari, al-Asbah representative at Silvana, said the business, which boasted revenue of $2 million in the last year before the uprising, initially withstood the spread of violence.
But he said access to markets deteriorated quickly after the Israeli troops army besieged Palestinian President Yasser Arafat's compound in Ramallah for the first time a year ago following a rash of suicide bombings in Israel.
"The problem began with delays of our trucks at checkpoints, then restrictions on our imported materials," Omari said.
"Our products are wafers and chocolates made of butter that cannot be kept waiting under the sun. And we cannot transport them via bumpy back roads (to evade checkpoints) because our products are delicate -- they may be damaged," he told Reuters.
Israeli military checkpoints that have proliferated over the course of the uprising have forced Palestinians to use unpaved dirty tracks at a risk to their lives -- if they are spotted -- and troops seal off any back routes they find.
Israel says checkpoints are meant to intercept or deter suicide bombers who would otherwise slip into Israel to blow themselves up. Palestinians say that such economically debilitating measures amount to collective punishment banned by international human rights conventions.
Spokesmen for the Israeli army and its civil administration in the occupied territories declined comment on Palestinian industrial and other economic woes.
Silvana's shutdown stranded 170 workers and stopped company production for the first time in nearly a half century.
A recent joint study by the Palestine Trade Centre and Palestinian Federation of Industries found industry "operating far below productive capacity due to political instability, movement restrictions and economic sanctions imposed by Israel".
Finance Minister Salam Fayyad said annual Palestinian exports had sunk to $280 million from $870 million in 1999.
Most of Silvana's sweets went to Palestinian markets with 20 percent exported to Israel and Gulf states, Omari said.
"Finally our access to all markets became almost impossible, compounding spending burdens. No one can withstand loss after loss. So the board of directors decided to close down."
He said suppliers whose survival hinged on business with Silvana, such as carton plants, had shut down in its wake.
DANGEROUS CHOCOLATE BARS?
Hold-ups at Israeli airports of imported raw materials needed for production proved another major headache.
"The security justifications given are ridiculous," he said. "How can I transport weapons and explosives in chocolate bars? This is just a pretext to hit our economy," Omari said.
"Deliberate delays in security and technical inspection procedures at 'borders' make it virtually impossible for our industries to distribute products and services to domestic, regional or international markets," the joint report said.
Naser Abdel-Karim, a prominent Palestinian economist, said Israeli blockades and curfews had undermined companies' competitive advantage in pricing by inflating transport costs, lowering productivity and interrupting raw material supplies.
"Industrial companies are in a dilemma because they have to keep paying their fixed running costs at the same time as productivity has dropped," Abdel-Karim said. "Many firms like Silvana are unable to comply with their financial obligations."
Unemployment exceeds 50 percent in many areas, more than 60 percent of the 3.5 million Palestinians live in poverty on $2 or less a day and the Palestinian infrastructure urgently needs repair after repeated army incursions, relief agencies say.
Masri attributed a great deal of losses to the destruction of some industrial sites by Israeli heavy weapons fire.
If Israeli troops left, the economy would need three to four years to regain its pre-uprising level, Abdel-Karim said.
(Reporting by Mohammed Assadi; editing by Richard Williams)
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