How Hamas stays in power

Find out how the funds at Hamas's disposal grew from $40 million to $540 million between 2006 and 2010.

Hamas (photo credit: Hamas)
(photo credit: Hamas)
Since Israel’s August 2005 withdrawal from the Gaza Strip, Hamas has evolved from a relatively small movement into a well-funded conglomerate.
Instead of being crippled by sanctions and siege, the organization has found ways to surmount early difficulties – such as frequent payroll delays – and establish an effective system of governance, ever tightening its grip over its fiefdom. As a result, Hamas has been able to empower loyalists while leaving the main burden of responsibility for Gaza’s 1.6 million residents to others.
Unfortunately, both the Ramallah-based Palestinian Authority and international donors have tolerated this situation, effectively contributing, if indirectly, to Hamas’s coffers.
The IMF estimated Gaza’s 2009 gross domestic product (GDP) growth at 12 percent, an impressive number.
According to a September 2010 IMF report, the total Gazan and West Bank GDP was $7 billion, while the gap in per capita income between the two areas was 48%; this data, combined with other relevant statistics, implies that Gaza’s per capita GDP was around $1,400, much of which derives from payments by the PA. Transfers and remittances added 50% more income, implying that average total per capita income was, in fact, $2,100. Yet much of this income does not represent productive economic activities, and unemployment remains high – probably around a third of the workforce.
One must also take into account the considerable trade conducted via the more than 800 tunnels into Egypt. Based on fragmentary evidence, this trade likely peaked at around $600 million-$850 million per year. Much attention has already been devoted to the goods smuggled into Gaza, such as fuel and cement.
Less well understood is the fact that, in exchange for these goods, cash has been steadily exported out of Gaza through the tunnels, at a rate of roughly $750 million per year. Cash is also flowing out of Gaza – through the tunnels and via bank transfers – to safe havens in Persian Gulf countries and Europe.
Where does all this cash come from? Many assume that substantial sums have been entering Gaza via the tunnels since 2008, but this can be only partially confirmed. Instead, the cash inflow seems to come primarily through banks.
According to Palestinian banking officials, an average of $2 billion per year has been transferred into Gaza via the Palestinian banking system since Hamas’s June 2007 military takeover.
The PA alone wires an estimated $1.2 billion per year into Gaza banks.
In addition, the UN Relief and Works Agency annually transfers about $200 million in cash to Gaza, along with $250 million per year worth of goods, grains and fuel. Cash is also transferred into Gaza by the 160 nongovernmental organizations operating there, by international organizations such as the World Bank and by foreign government aid organizations, although much of what they spend arrives in the form of goods shipped via Israel.
According to IDF Military Intelligence, Iranian subsidies to Hamas total around $100 million annually, or less than 20% of the group’s proclaimed budget, stated to be $540 million in 2010. Iranian funds are directed mostly toward the Hamas Political Bureau in Damascus, primarily for weapons purchases and shipments, rather than toward Gaza.
Hamas likely raises as much as $250 million annually via taxes.
It also regulates many types of businesses – from street vendors to Gaza’s 20 money-changing companies – requiring them to pay license fees.
Hamas also takes a hefty cut from the Egyptian tunnel trade, imposing high “customs” duties and a daily fee on local tunnel contractors. Such trade has been dramatically reduced since June 2010, when Israel quadrupled the number of trucks permitted to bring goods to Gaza through legal terminals.
IN 2005, Hamas was a modestly sized organization of 4,000-7,000 military personnel, with a small charity and education network and a skeletal party bureaucracy. From 2006 to 2010, however, the funds at its disposal reportedly grew from $40 million to $540 million. At the same time, Hamas has gained full control over all government ministries and municipal councils in Gaza, as well as many civilian agencies. It also holds a monopoly of power over every security and intelligence service in the territory. In total, Hamas pays salaries to at least 35,000 employees, among them many of the 20,000-plus armed personnel.
To help curb illicit financing, the US has designated the Hamas Islamic National Bank and the Gaza Postal Bank as “terrorist entities,” but it is not clear how much this measure has affected their operations. Both banks continue to conduct business in shekels, and they seem to have developed ways of working with moneychangers used by individuals who receive their salaries in US dollars. The Islamic National Bank even has sufficient liquidity at present to offer home mortgages.
The movement has also recently turned to purchasing all sorts of businesses and initiating new ventures, often forcing businesses to close down in order to eliminate competition. It also coerces owners into selling items for cheap or “contributing” to Hamas.
Soon after its 2006 electoral victory in Gaza, Hamas faced great financial difficulties, leading it to smuggle millions of dollars in cash through Egypt. Today, however, Hamas has managed to develop local sources of steadily growing income, mainly by exploiting the huge aid sums transferred by the PA and international donors to sustain the general population. No effective mechanism is in place to prevent the group from taking advantage of the constant cash flow into Gaza; as a result, a significant part of the money intended to help alleviate the hardship of the region’s inhabitants has gone to waste. More rigorous measures are needed to restrict Hamas’s ability to siphon off such funding for its own purposes.
This “Policy Watch” was written for the Washington Institute for Near East Policy and is reprinted by permission. Ehud Yaari is an Israel-based Lafer international fellow with the Washington Institute. Eyal Ofer is a researcher at the institute.