The economy in Gaza has been struggling and the decision to export soda to the West Bank could mean that the economy struggles more. Here is a take on the situation from Al-Monitor.

Adnan Abu Amer May 21, 2019

A Palestinian worker monitors 7-Up production at the Yazji Group soft drink factory in Gaza City, Gaza, Aug. 3, 2005.

As many Gaza Strip-based businesses have struggled under the 12-year-long Israeli blockade, unable to make a sustainable profit, some are driven to search for new and alternative markets despite warnings of potential harm to the local economy.

One of those companies, Pepsi Palestine, has spent four years establishing a soda bottling factory in the West Bank and is now able to serve that market directly. The company, affiliated with bottler Yazji Group, had shipped its products to the West Bank from its facilities in Greece and Jordan, paying steep transportation costs and tariffs.

Pepsi Palestine media director Hammam Yazji told Al-Monitor, "Israel bans the exportation of our products from Gaza to the West Bank, but it allows products to move in the opposite direction. We had to establish a factory in the West Bank, where production costs less. We also employed people, and the Palestinian Authority [PA] offered us incentives such as expediting the issuance of needed permits and governmental procedures."

The company, however, is maintaining its Gaza Strip factory despite dropping sales due to the economic situation there.

Yazji Group and other companies in Gaza say they open branches in the West Bank because the latter has enough raw materials, electrical power around the clock and the necessary infrastructure, unlike Gaza. Israel also continues to ban certain production tools and packaging equipment — anything it thinks terrorists could put to use — from entering the Gaza Strip.

The new facility in the West Bank is considered one of the newest and most modern soda factories in the Middle East. Yazji Group said construction work on the plant in the Jericho industrial zone was completed in February at a cost of $25 million. The 10,000-square-meter (107,639-square-foot) plant employs 72 people, with the number set to rise to 150. The factory also has warehouses for storage and raw material, and water-treatment facilities.

The company just announced its first shipment to the Gaza Strip on April 30.

"We are happy with this accomplishment," Mahmoud Yazji, who owns Yazji Group, said in a press statement that day. "It is a historical moment crowning years of continuous work, despite impediments.

Yazji Group was established in 1961 in the Gaza Strip.

Hammam added, "I don't want to talk about our profit or the sales quantity or the competition with other soda companies in the West Bank. It's a seasonal rather than fixed trade. But, we established the factory because our sales in Gaza dropped, like all companies. Our prices are affordable for consumers in Gaza and the West Bank. We sell a 1-liter bottle for 2 shekels, which is equivalent to 50 cents."

"Gaza's consumption of local and imported soda beverages is estimated at 110,000 tons per year, and the enclave imports 13,000 tons annually from Turkey, China, Jordan, Saudi Arabia, the UAE [United Arab Emirates] and eastern Asia," Hani al-Barawi, head of the Food Products Department at the Ministry of Economy in Gaza, told the local Felesteen newspaper in March 2017.

On average, the Gaza Strip produces 5 tons of natural juices daily, and its daily need amounts to 500 tons. It imports 20,000 to 30,000 tons yearly — 30% from the West Bank, 10% from Israel, 40% from the Gulf, 10% from Turkey and 10% from other countries.

Nasser Abdul Karim, an economics professor at Birzeit University, told Al-Monitor, "Yazji Group opened a branch in the West Bank to gain economic privileges that are missing in Gaza, like marketing opportunities, overcoming Israeli restrictions and the geographic separation between Gaza and the West Bank. This encourages establishing more branches of Gazan companies in the West Bank. Gaza's financial and economic situation is not encouraging. Therefore, factories in Gaza seek alternative markets."

Yazji Group is not the first Gazan company to establish a branch in the West Bank: Biscuit maker El-Awda Co. opened a branch in Hebron in 2017.

Although companies' justifications for building branches in the West Bank seem reasonable, such moves risk emptying Gaza City of factories and harming its productivity.

Osama Nofal, director of planning and policies at the Ministry of Economy in Gaza, told Al-Monitor, "Yazji Group built its branch in the West Bank due to production impediments in Gaza, including high production costs and power cuts, leading to losses. But opening branches for Gazan factories in the West Bank is a negative indicator that harms the economic cycle in Gaza, causes lack of jobs and leads to a drop in capital that is moved to the West Bank at the expense of Gaza. There is an inclination to move some factories to Egypt, too. Factories can open branches abroad, but we are trying to offer an encouraging economic environment [through tax breaks and help with marketing] to keep them in Gaza."

Yazji Group is the main producer of sodas in Gaza, and it owns the trademark rights for Pepsi-Cola, 7UP and Mirinda in the West Bank and Gaza. Yazji holds a 35% share of the overall soda market in Gaza and employs 300 people there. The new Jericho factory's production capacity meets demand in the West Bank cities and provinces, although the Gaza plant already produces enough to meet demand in both territories but its exports are restricted.

When Osama al-Saadawi, PA minister of state for leadership and empowerment, visited Gaza on May 8, the Union of Contractors in Gaza handed him a study on moving national facilities outside the Gaza Strip to promote jobs and investment opportunities abroad.

Companies that moved their branches outside Gaza mainly cited fear of ongoing wars and the blockade as their reasons. Businesses were never compensated for the losses their factories sustained during the Israeli wars on Gaza between 2008 and 2014.

Atef Adwan, head of the Economic Commission of the Palestinian Legislative Council, told Al-Monitor, "The factories in Gaza increase investment, employ labor and reduce unemployment. It's a negative indication when a factory moves outside Gaza. The West Bank situation is fine, but Gaza is under blockade. The increasing relocation of branches to the West Bank would lead to an economic crisis in Gaza. This is worrying. We are giving factories incentives to remain in Gaza, like tax exemption for the first five years, customs protection for imported merchandise and promoting local products.