Global Economics

Twilight of Gaza's Smuggling Tunnel Millionaires


Emad Shaaer has owned seven tunnels over two decades of smuggling

Photograph by Eyad Al Baba for Bloomberg Businessweek

Emad Shaaer has owned seven tunnels over two decades of smuggling

The town of Rafah straddles the border between the Gaza Strip and Egypt. Life there is bleak. Children wearing flimsy flip-flops in the dead of winter play with scraps of metal; young men drive donkey carts carrying gravel; litter lines the street. These are symptoms of Gaza’s economic disease. The small sliver of land—227 square miles wedged between Israel and Egypt—is home to 1.6 million people, nearly 40 percent of whom live below the United Nations poverty line. A recent report by the Palestinian Central Bureau of Statistics estimated unemployment was 31.5 percent in early 2012. Real gross domestic product per capita in 2011 was $1,165, 88 percent of the 1994 level.

Yet there has long been a sure way to make money in Gaza: by going under it. The tunnels that move goods into the Strip from Egypt have been linchpins of the economy, employing 12,000 to 15,000 and supplying as much as 75 percent of the products sold in the markets, according to Sameer Abumdallala, head of the economics department at Al Azhar University in Gaza. Now the smugglers say their importance is waning: Access to Israeli goods is improving, and the Gazan government has begun regulating the tunnels, sapping profits.

The tunnels are a byproduct of Gaza’s tortured history. The Strip was ruled by an Egyptian military governor until the 1967 war, after which the Israeli army occupied it and Jewish settlers moved in. The army and settlers didn’t leave until 2005. As part of the Camp David accord, the Israelis and Egyptians split the Gazan city of Rafah in two; a wall divides the halves. To stop weapons smuggling, the Israelis demolished housing to create a no man’s land on the Gazan side of the wall.

For years, Gazans could cross into Israel to work, and goods flowed more or less freely into the Strip. That came to an end in 2007 when Hamas, the militant Islamist group, vanquished the more moderate Palestinian Authority by force after winning Gaza’s first free elections in 2006. Israel and Egypt imposed a wide-ranging embargo: Israel viewed Hamas as a terrorist organization, while Egyptian President Hosni Mubarak worried about the militants extending their influence to his country. With the embargo making goods scarce, the tunnel operators flourished. After Muslim Brotherhood member Mohamed Mursi assumed Egypt’s presidency, he eased freedom of movement for Gazans but didn’t take substantive measures to lift the economic blockade.

Emad Shaaer has been plying the tunnel trade since the 1990s. At 6 foot 3, he looks more like a retired quarterback than a don of contraband. Over nearly two decades, Shaaer has owned seven tunnels, the proceeds of which bought him two farms, a lavish vacation cottage, and three cars. “When I get money, I buy land, I build a house, I buy cars,” Shaaer says of his investments. “So I have millions [in assets], but I don’t have a million dollars in cash.”

For the Shaaers, smuggling is a family business. After Israel partitioned Rafah, families such as the Shaaers found themselves on both sides of the border. They turned this division to their advantage. The Egyptian branch of the clan helped the Gazan branch smuggle weapons and people into and out of the Strip. Residents of the two Rafahs wanted to see each other, but getting official permission to go back and forth was difficult. Initially, the Shaaers and others dug short tunnels that followed a network of irrigation pipes: The tunnels’ endpoint would be the basement of someone’s house. After the Israelis established their buffer zone, Shaaer says the Gazans began to dig bigger and longer tunnels.

Rebuilding tunnels destroyed by Israeli airstrikes in November 2012Photograph by Adel Hana/AP PhotoRebuilding tunnels destroyed by Israeli airstrikes in November 2012

Shaaer entered the smuggling business with his brother, working in a relative’s tunnel to learn the business—making contacts in Egypt, knowing where the dirt walls needed concrete reinforcement and where wooden planks were enough. The brothers spent four months digging their first tunnel by hand. The Israelis were still in Gaza, and the risk of detection by their military or Egyptian authorities was high. “There was no compass to figure out where we were going. It’s just like sitting in a car with black windows,” Shaaer recalls.

The trade was so sensitive the brothers would put the sand they dug out in sacks and drive an hour to Gaza City at night to dispose of it. The money Shaaer earned varied. “Sometimes you got $200,000, and sometimes you got nothing,” he says. It all depended on the market: Forty-four pounds of C4, an explosive used to power homemade rockets, once netted the brothers some $20,000. “Those who had a tunnel at that time [1994 to 1999] became rich,” Shaaer says.

The next boom came when Hamas took control of Gaza in 2007 and the Israeli-led blockade closed the borders, halting imports of many everyday goods. In response, the tunnel owners started bringing in everything from potato chips and medicine to cars and exercise machines.

Owners and workers say completing a 700-meter-long tunnel costs between $150,000 and $250,000. Most tunnel owners pay roughly $50,000 upfront to buy equipment and acquire the wood and cement needed to line the tunnel. Laborers and experts in tunnel building usually get paid with profits from the first few shipments to come through. The most elaborate tunnels are well-lit and tall enough to stand in: Some are big enough to drive a car through. In less ambitious tunnels, smugglers crouch alongside the pulley systems that drag heavy shipments across a sandy floor. Just as important as the tunnel are the Egyptian contacts—the wholesalers who sell to the middlemen on the Egyptian side, who in turn sell to the tunnel operators on the Gazan side.

As the blockade dragged on, the enclave was filled with stories of tunnel operators becoming millionaires overnight. Gazans caught in a speculative frenzy sold family possessions to invest in the business. From dozens in the ’80s and ’90s, the number of tunnels reached well over a thousand by the turn of the decade. Shaaer estimates about 500 are still working. The tunnels became an open secret, with passageways opening in orderly rows under plastic tarp tents just dozens of feet from the fence that marks the end of the no man’s land. Shaaer says the most profitable products in the early years of the blockade were motorcycles. “Smugglers could charge up to $1,000 to transport one bike from Egypt,” Shaaer says, adding he made roughly $5,000 per day just on bikes.

In December 2008, Israel launched Operation Cast Lead to stop weapons smuggling and suppress rocket fire from Gaza. The Israelis bombed the tunnel zone; Shaaer says three of his seven tunnels were destroyed. After the three-week operation ended, construction materials were in high demand to rebuild the heavily bombarded Strip, and the owners of the tunnels that remained did a brisk business.

By 2009, Hamas realized the trade’s economic potential and began to regulate and tax goods coming through the passageways. Shaaer says he now must pay about $2,680 to the government per tunnel permit per year. Omar Shaban, director of Pal-Think for Strategic Studies in Gaza, estimates that the Hamas government’s annual income from taxing gas, cigarettes, and construction materials brought through the tunnels comes to $188 million. Sobhi Radwan, the Hamas mayor of Rafah, denies that tunnel owners pay for permits or that the government regulates or taxes products coming through the passageways.

Tunnel owners and workers say that in 2009 a Hamas tunnel committee distributed a list of items, including fuel and cars, that could not be brought in without its approval. Shaaer says Hamas has also set a limit on how much tunnel owners can charge for building materials like cement. The price cap, he says, is reducing his profit. The industry also faces more competition from Israeli products, which have returned after Israel partially lifted the economic siege of Gaza in 2010. The easing was part of an effort to mollify global public opinion inflamed by the Israeli raid on a Turkish flotilla trying to break the siege. Gazans still want all restrictions lifted.

Armed Hamas guards in dark uniforms are now stationed at every entry point to the tunnel zone. They shoo away most journalists and accompany visitors to the tunnel entrances. Members of the tunnel committee say they’re not authorized to speak to the press.

Smugglers say the real money now comes from bringing in goods subject to heavy taxes or forbidden by Hamas. Underground passageways have been built that stretch for more than a mile to skirt the watchful eyes of Hamas. The openings are tucked between houses to hide the smugglers as they haul up cigarettes and other contraband.

One 29-year-old, who wanted to be called Abu Ahmed, has been in trouble with Hamas four times for bringing in fuel; Tramadol, a prescription painkiller used recreationally; Schweppes Gold, a flavored malt beverage; and cigarettes through his tunnel. Shipments were confiscated and he’s been fined. The Tramadol got him six months in prison. But the money he’s made has bought him a new house, and he can buy a new car whenever he wants. “Whatever you do, you have to be careful,” he says, though he admits the allure of quick money is hard to ignore. “If I had the chance to bring in 400 packages of Tramadol, I would do it again.”

Reclining in the living room of his vacation home, Shaaer reflects on the money he’s made and the future of his seven children in Gaza. “You have money, you have good style of life, but you can’t use your money, you can’t travel outside and enjoy your life. Gaza is a special prison,” Shaaer says.

The bottom line: Hamas makes as much as $188 million annually taxing gas, cigarettes, and construction materials brought through the tunnels.

Topol is a Bloomberg Businessweek contributor. Follow her on Twitter @satopol.

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