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The high cost of maintaining the colonies and keeping settlers sweet

Subsidies to the Settlements


Chapter Five, The Economic Base of Israel’s Colonial Settlements in the West Bank
Nu’man Kanafani and Ziad Ghaith, Palestine Economic Policy Research Institute
April 2012

Successive Israeli governments have bounteously subsidized the settlements in the West Bank and East Jerusalem. This support is exposed in the form of large packages of direct aid and financial incentives. The Israeli government offers aid to different areas according to the so-called ‘map of national priorities’. This map currently targets 75% of the settlements of the West Bank (90 settlements inhabited by about 144 thousand settlers). The inclusion of settlements in priority development areas has been a policy for all governments in the past decades (Peace Now, 2009).

Below is a summary of some of the advantages priority development areas receive from eight ministries:

Agriculture: Agriculture is one of the sectors given priority by the Israeli government and Jewish organizations, especially settlement agriculture. Support is focused on the settlements of the Jordan Valley and those located in remote areas, where investment in industrial or service sectors is demanding and unyielding. Swirski & Konor (2005) argue that the World Zionist Organization has played a strategic role in supporting the agricultural sector and it has spent huge amounts of money for the development of agricultural projects in the settlements built on the Palestinian territory.

Industry: In the industrial sector, the incentives, as we will see later, include grants and income tax credits granted to factories; supporting employers to promote employment; aid to the factories in time of crisis; supporting industry infrastructure development; grants to support industrial research and to cover development costs; and financing technological incubators.

Housing: The government of Israel provides loans to buy houses, facilitates laws and procedures of granting loans; provides up to 50% aid to cover the costs of developing housing areas; gives priority to the settlements in terms of implementing of public projects; provides discounts in prices of land; and exempts settlers from land registration fees. Such lavish support is delivered via the General Directorate of Rural Settlement Affairs in the Ministry of Housing, which, between 2000 and 2002, transferred about 68 million dollars to the settlements– equivalent to 47% of the total budget (Lupowitz, 2003).

Education: Lupowitz (2003) points out that, apart from incentives given to students and teachers, the Israeli Government’s investment in the schools of the settlements is higher than average investment in schools of Israel proper. The number of students per class in the settlements is less than in any Israeli city within the Green Line.

Health: The settlements enjoy a high level of health care converge compared with Israeli cities. For every 50-100 settler, there is one medical facility- well above the proportion for those in the Israeli cities (ICBS, 2010).

These privileges and facilities are only the tip of the iceberg. Sources stress the peculiarity of aid and grants in the field of education (Ibid), which has been evident in the expansion of educational institutions and employment in this sector within the settlements, as noted previously. These advantages resulted in a 57% increase in average per capita grants in the settlements during 2000-2006, compared with grants in Israel proper.

According to the Accountant General– Israeli Ministry of Finance, the per capita budget transfers to the municipal authorities in the West Bank settlements (3 municipalities and 6 regional councils), in 2007, were significantly higher than transfers to cities in Israel proper (B’Tselem, n. d.).

4.1 Government Support for the Budgets of the Settlement Authorities
The government support for the budgets of local councils in Israel represented 35% of the budgets of these councils in 2006. The remaining 64% was financed by the local councils themselves (see Figure 9). However, these figures are entirely different when it comes to local councils of the West Bank settlements. Figure (10) shows that 57% of the budgets of these councils comes from government support, while the contribution of the settlement councils is only 43% (see Figure 10). In 2006, the government transferred $456 to these councils. Swirski & Konor (2005) found that settlements receive more than double the equivalent per capita funding for municipalities within the Green Line. Governmental spending is disproportionate in favor of the colonial settlements as well (compared to the population in Israel proper). With an intention to encourage Israelis to live in the settlements, the government provides bountiful aid for construction, subsidizes loans to buy homes, financially assists the education sector, and provides health insurance services that are by far better than those offered to Israelis within the Green Line. Furthermore, the government finances bypass roads, helps settlers in purchasing armored vehicles, delivers weapons to the settlers and offers weapons training (Swirski & Konor, 2005). If security costs are calculated, it turns out that each settler annually receives $9,000 more than an Israeli living in Israel proper (Peace with Justice, n. d.).

Government support to settlements goes beyond what has been enumerated above. There are several implicit channels, governments and Jewish organizations, geared to serve the settlements .These take different forms and support is provided via fictitious channels.’ Peace Now ‘ published a report in December 2010 entitled “The Price of the Settlements “.In this report, it gave an account of the money transfers to the settlements in the West Bank, (excluding Jerusalem) as contained in the budget of the Israeli government for the year 2011-2012 (Peace Now, 2010). The organization started its report with an apology to the reader for the unlikelihood of providing exact figures on the true cost of the settlements that the Israeli economy sustains .The study found that the settlements in the West Bank expand and flourish, paid for by the Israeli taxpayer, to the estimated tune of 2.5 billion shekels a year. These amounts are paid in the form of aid ,grants and facilities offered by ministries and various official bodies.

The study also found that in 2007 the Finance Ministry transferred 1.127 billion shekels to local councils in the settlements. That amounts to 8.9% of the total transfers from the state to councils that year. At that time, the number of residents in the settlements was 3.8% of the residents of Israel.

On the other hand, the gross investment in public construction in the settlements, (not including East Jerusalem) in 2009, was NIS 431 million, which was 15.4% of the total public investment in construction for housing that year. Table 25 displays the budget items that explicitly state the amounts allocated to the West Bank settlements (more than 2 billion shekels a year). The Peace Now study highlights other funds implicitly earmarked for the settlements. These were classified under different misleading items
within broader spending items.

According to ‘B’Tselem’ (n. d.), the Israeli government latently supports settlements in the West Bank, primarily through funding the Settlement Department in the World Zionist Organization, which is entirely funded by the Israeli government. Unlike official bodies in Israel, the World Zionist Organization, as an NGO, is not obliged to fully disclose all its activities. This comprehensive assistance has compensated for the inherent shortfalls and deficiencies in the economic base of the settlements. It has also improved some socio-cultural indicators in the settlements, in spite of limited production and economic contribution. A Peace Now study (2009) argues that the socio-cultural indicators in the settlements are better than the average in Israel. For example, the level of success in matriculation exams in settlements is higher than anywhere inside Israel: 71.2% of examinees in the settlements compared to a national average of 65.8%.

The income level for a family in the settlements (NIS 13,566 per month) is 10% higher than the national average, which is NIS 12,343 per month. The unemployment rate in the settlements is below the national average (6.5% in the settlements compared to 7.3% throughout Israel). The study concludes that “It is important to emphasize that the strong economic indicators in the settlements exist despite the fact that one-third of the settler population is ultra-Orthodox– a group that ranks among the poorest in Israel.” The study goes on to say that this “is a clear reflection of the disproportionate benefits granted to settlements by the government.”

4.2 Facilities and support for industrial zones

The Israeli industrial zones on the territory of the West Bank enjoy special privileges. To shed light on the advantages available to investors in these industrial zones, we provide an excerpt from Adumim Industrial Park web page under the heading “Advantages”: The Ma’ale Adumim Economic Development Company Ltd., which is controlled by the Ma’ale Adumim Municipality, is the economic arm of the Municipality. It began operating in 1993, and renewed its intensive activity in 1998, following the decision to privatize the industrial area. The company, in cooperation with the municipality, manages and develops a number of projects within the municipality’s jurisdiction, and has been authorized by the municipality to implement on its behalf business plans and conduct all types of economic activity. The Park currently includes approximately 230 industrial plants and businesses in numerous industries: commerce, vehicle licensing institute, garages, food, textile, construction materials, aluminum, metals, printing and more.

4.3 Financing Housing and Banks’ Support to Settlers

One form of the subsidies granted to the settlements is housing and enterprises loans provided by banks. According to thesebanks, anyone who wishes to build or buy a home in West Bank settlements or East Jerusalem qualifies for a real estate loan. Thus, these banks have situated themselves as major players in the colonial settlement enterprise in the Palestinian territory. Moreover, banks provide first-class services to local bodies in the settlements, including, but not limited to, loans for infrastructure development, public buildings and municipal services, as well as loans to businesses and industrial facilities operating in the industrial zones of the settlements. Table (25) lists names and locations of banks operating in the Israeli settlements.

Evidently then, the settlement enterprise is being carried out by complementary players, namely the Israeli government, the private sector and Jewish organizations. The government advocates the strategic goal that is concordant with settlement plans, which Israel embraced since it took control of the Palestinian territory in 1967, such as Alon’s Plan and Sharon’s Plan. The Jewish organizations seek to increase the Jewish presence in the West Bank and Jerusalem. The private sector is piloted by financial and commercial interests. With this tripartite alliance, the whole story unravels. This alliance is never arbitrary; rather it is systematically aiming at achieving more land seizures, and thoughtfully encouraging the movement of Jews to the West Bank to establish a permanent presence, and to present settlements as being fait accompli.

Housing Assistance
In 2011, the Israeli Ministry of Housing announced the sale of land to build 6,000 housing units in Ariel, Har Homa, Beitar Illit and Givat Ze’ev. Project Marketing Coordinator told Maariv Newspaper (see Al-Quds Newspaper, December 27, 2011) that the price of a land lot in the settlements is by far cheaper than a land lot in Israel. She added that the State takes into account the risks associated with the purchase of land outside the Green Line. The Coordinator was reported as saying that the minimum price for a piece of land to build a luxurious house in Ariel, for example, is 60,000 shekels (price includes building up the infrastructure), while the price of land, with the same area, within the Green Line (a tenminute drive from Ariel) is 320,000 shekels. She continued to say that when you add 600,000 shekels as a cost of building a house, the result is a maximum of 1 million shekels for a luxurious house, compared to more than two million shekels in Israel.

In Salit Settlement, a detached 250-square-meter house is only 900,000 shekels, 700,000 shekels less than the price of a similar house in Israel proper. In an inquiry done by Maariv Newspaper on building in the settlements, the purchase of residential units in the occupied territory is found to be different from within the Green Line, in that real estate is not routinely registered in the Land Registry. Rather, the housing units in the settlements are registered in the Civil Administration in Beit El. In addition, the planning and construction laws in Israel are not effective in the settlements. The Jordanian law (along with the decisions of the Ministry of Defense) is still in effect in these territories. This gives local authorities greater flexibility in the acceleration of the pace of construction. However, the Israeli banks (and real estate banks in particular) provide loans to settlers on equal terms with the Green Line

4.4 The Economic Cost of Settlements
The Israeli researcher Shir Hever discussed the cost of occupying the Palestinian Territory to Israel. He calculated different types of civilian and military costs during the period 1970-2005 and added the interest accrued during the period. Hever concluded with a staggering figure of 425 billion shekels. Then he drew a comparison between his figures and the results of other related studies (see Table 26).

Undoubtedly, the margin of error in the above estimates is wide. These figures do not take into account the net cost of occupation (i.e. cost minus the gains Israel achieved from occupying the West Bank). Still, these figures are valuable as they provide a conclusive picture of the economic burden of the occupation.

In a different, but well related standpoint, the Palestinian Ministry of National Economy published a report, estimating the losses the Palestinian economy incurred as a result of the occupation at $ 6.8 billion in 2010– suggesting that ending the occupation could directly increase Palestinian GDP by 85%. The report, published in early September 2011, arrived at this estimation by calculating the cost the economy incurs as a result of the Israeli restrictions on movement and exploitation of natural resources. The report utilized different approaches to calculate the cost of various elements. For example, the report states that the cost of Gaza’s blockade appears in the lack of growth rate achieved in the West Bank since 2006. This loss was estimated at $ 1.9 billion (or 23.5% of GDP). The loss incurred by theWest Bank and the Gaza Strip from the restrictions on water use has been calculated as part of the loss of agricultural production that otherwise could have been achieved. This loss has also been aligned with the adverse health consequences of water shortages. The table also shows that the total direct costs are 37%, while the indirect costs are 48% of GDP of the West Bank and the Gaza Strip. The report further indicates that these figures are minimum estimates of the true cost, and that a wide range of costs born cannot be calculated due to the lack of information.

4.5 The Estimated Monetary Worth of the Settlements

The Estimated Value of the Settlements will be discussed from two different dimensions: the value estimated according to investment and layouts; and estimates of the values of the settlements in light of the potential payments to settlers in the event the state evacuates them. In this appraisal, we will make use of the amounts paid to settlers who were evacuated from the Gaza Strip.

In a thorough study conducted by the Macro Center for Political Economics in 2010 and published in Haaretz (February 23, 2010), the authors found that Israeli settlements in the West Bank (encompassing 12 million square meters of roads, homes factories, public buildings, etc) cost more than $17 billion to build. Using satellite imagery and other technology, the study mapped every home and structure put up in the settlements. Its work was the result of a year-long effort to gauge the total value of the Jewish settlement enterprise in the West Bank.

Table 28 presents some figures from the study. Obviously, the value of housing (apartments, private houses) constitutes about 80% of the total value of the settlements. MCPE director general says the logic behind the economic calculation is to assess the cost of construction and infrastructure in the settlement enterprise. “This isn’t market value, but rather the cost of building infrastructure,” he told Haaretz. In principle, the market value may be higher or lower than the cost of construction. It is also not entirely clear whether the above figures involve construction costs at current prices or at the actual time of construction.

Another study conducted in 2007 almost concluded with the same results. The study also depended on a set of 185 aerial photographs to estimate the costs of construction and buildings (Arieli et. al., 2009).Table (29) provides some details on the buildings (excluding East Jerusalem). Arieli et. al. estimated the construction cost at 18 billion dollars, up by one billion dollars from MCPE’s study. They also found that the total construction area is 13.6 million square meters, an increase of 1.6 million from MCPE’s study.

The figures also reveal that the built area in the settlements (excluding Jerusalem) is roughly 2.2% of the area of West Bank, and that the bulk of construction is residential. By ,2007 a total of 97,530 dwellings had been constructed 65%) of which contained four rooms or more .(On nonresidential plots, a total of 795, 000 sq. meters of built area was earmarked for industry 000 ,764 ,sq. meters for education and 1 321,000sq. meters for public buildings .Furthermore, the total cost of construction in the settlements is 18 billion dollars, of which more than 11 $ billion spent on building residential areas) Arieli et al., 2009.

In 2011, the Macro Center for Political Economics updated its figures. The press pointed out that the Centre’s report was sent to the Office of the Prime Minister. The report claimed that “the way in which Israel withdrew from the Gaza Strip in 2005 led to the conclusion that more professional tools are required for decision-makers to properly plan such moves, which includes the evacuation of settlements (Yedioth Ahronoth, May 27, 2011). The report found a significant increase in the settlements’ monetary worth due to expansion. It claims that, in 2004, settlements (excluding Jerusalem) were worth $12.6 billion, a sum that rose to $18.8 billion in 2011.

The report listed 4 settlement blocs as cities – Ariel, Ma’aleh Adumim, Beitar Elite and Modi’in Elite. It also found that Ma’aleh Adumim, the largest in size and population, is the most expensive city in the West Bank. It is currently worth just a little under $2 billion. Some of the smaller settlements, such as Ofra and Ali, are estimated at about $200 million (ibid).

As noted previously, these accounts are limited to the cost of construction in the settlements of the West Bank, excluding East Jerusalem. To extrapolate the monetary worth of the East Jerusalem settlements we will try the following test (building on the figures available on the settlements of the West Bank):
The test assumes that the cost of construction per capita (per settler) is the same in both places. When dividing the cost of construction on the population of the settlements in the West Bank (excluding Jerusalem), we come up with $67,850 (the cost of construction for every settler). Now, when this figure is multiplied by the number of settlers in East Jerusalem (201 thousand), the result is $13.6 billion. This means that the total construction cost of settlements in the West Bank (including Jerusalem) is about $ 30 billion. This figure is an approximate and perhaps exaggerated, especially in that the pattern of construction in urban areas of Jerusalem does not compare well with the more advanced pattern in the settlements of the West Bank.

4.6 The Costs of Evacuation
Building on the sums paid to settlers who were evacuated from the settlements of the Gaza Strip and some West Bank settlements in 2005, we will try to estimate the monetary worth of the West Bank settlements. On September 12, 2005 the last drove of Israeli settlers and militants left the Gaza Strip, marking the end of 38 years of military occupation. Behind a gate on the Gaza border, the military left ruins of 3,000 single-storey dwellings, in addition to demolished public buildings, schools, military barracks, and agricultural and industrial facilities. Twenty-one settlements and five outposts (random settlements) were evacuated from the Gaza Strip. In the West Bank, four settlements were evacuated. The number of evacuated settlers totaled about 9,000 (8600 from Gaza), from about 1500-1800 families (Jewish Virtual Library, 2011). The amounts for each family were calculated based on multiple criteria: area of residence, area of plot, years of residence in the settlement and the impact of evacuation on the availability of jobs for family members. Table (30) reviews the structure of payments that have been adopted.

In addition, the colonist farmers enjoyed additional privileges, including access to land for cultivation and constructing houses. Settlers also received packages of incentives in order to encourage them to settle in certain areas. The settlers who chose to settle in the Galilee and the Negev received additional assistance of up to 30 thousand dollars. Additionally, those who opted for living in Ashkelon were granted additional funds (Jewish Virtual Library).

There are considerable differences between various estimates of the amounts each family received. Due to the lack of official figures on these payments, we might need to rely on figures obtained from trustworthy press reports. The British Broadcasting Corporation reported that each family received 140 thousand pounds (250,000 dollars). The Jewish Virtual Library (2011) estimated the figure at 450 thousand dollars. Reuters news agency reports said the figure stood at 300 thousand dollars for each family. The latter figure seems reasonable (a compromise between the two previous estimates). Assuming that some 1,800 families were evacuated, the amounts of compensation would stand at $540 million.

These sums were not the only amounts paid during the evacuation. Other allocations were delivered for security and development plans for the new areas the settlers moved to. Therefore, the figure for compensation and costs associated with the evacuation of the settlements in 2005 totaled $ 1.3 (according to the Jewish Virtual Library) and $1.5 billion (according to Reuter). In the same context, a report submitted to the U.S. Congress claims that the total cost of the disengagement is about $2.2 billion (Migdalovitz, 2006).

Payment figures for each family in the 2005 evacuation can be taken as a clue for projecting rough estimates of the amounts required for evacuating the settlements in the West Bank (including East Jerusalem). Given that about 451,000 settlers live in these settlements and that the average number of household members is 4.5 people, we can roughly conclude that the number of households in the settlements is about 100,400 (including East Jerusalem). With an average payment of 300 thousand dollars per family, the total figure hits $ 30 billion. This figure is identical with the estimates of the costs of construction in the settlements and Jerusalem that we concluded earlier in this study. However, this match should not be taken as an indication that our calculations are a hundred percent accurate, since all of the figures are approximate. The projections are largely based on assumptions that may be erroneous due to scarcity of data from official sources.

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