The goal of cross-border economic cooperation in the Middle East is as old as the search for peace in the region, and sometimes just as elusive. Largely as a result of multiple tariff barriers, internal trade among the four Arab countries surrounding Israel is minimal, comprising less than 6 percent of all regional exports. And about 8 percent of all trade in the Middle East is between countries in the region.
The architects of the Middle East process had hoped that the spirit of rapprochement would advance the degree of economic cooperation between Israel and its neighbors, and that in turn would reinforce and further the interests of the peace process itself. But to date the results have been unspectacular.
A contributory factor has been the growing economic disparity between Israel and its Arab neighbors, meaning that, as time continues their economies are growing more dissimilar. During the first four decades of its existence, Israel's economy was barely strong enough to support its own people, let alone export capital, ideas and commercial opportunity. But the 1990s saw the start of a high-tech boom and that triggered major change.
Today, Israel is a magnet for venture capital from around the world. According to a report appearing in Globes, a financial daily published in Tel-Aviv, the locally-based Economic Models Ltd. estimated that, in the first quarter of 2000 alone, Israeli companies took in $617 million in venture capital investments, with most of it coming from the United States. Some $417 million of that was earmarked for Internet projects.
In another report, the Boston Globe wrote that Israel's 50 largest high-tech businesses generate about $20 billion a year for the economy and employ an estimated 70,000 people. Since 1991, Israel has started some 3,000 technology-related companies, the greatest number of high-tech start-ups in any country other than the United States.
But the red flags of economic inequality are evident all around. The per-capita GDP of Egypt and the Palestinian Authority stands at about $1400, Jordan's is about $1,200, and Syria’s is $1,100. In contrast Israel boasts a per-capita GDP at a Western European level of $16,100, and the socioeconomic gap — currently at about 15 to 1 — is expected to widen in the coming years.
This is not a fact that is lost on all of the Israeli leadership. "Whether your company will grow or not depends on your relations with [Silicon Valley]," said Uri Savir, a Knesset member, who was one of the engineers of the Oslo Accords between Israel and the Palestine Liberation Organization (PLO). "Whether it exists or not depends on Gaza. Without peace this latest revolution will not sustain itself."
Most Israeli entrepreneurs are cognizant that the flow of foreign investment capital into their nation commenced in earnest only in 1993 — after the Oslo Accords signaled a new regional commitment to peace. For many, a comprehensive regional peace is a pre-condition for long-term economic growth, and many strive to put business before politics.
But, as some experts point out, Israel’s economic prosperity may be acting as an obstacle to peace, in that it serves as a source of friction and a barrier to improved relations. Some argue that, as the most technologically advanced nation in the region, Israel has a vested interest in spreading prosperity to its neighbors, just as the United States and other developed countries must do for the developing world as a whole.
Ironically, argue many of the experts, the Arab economic boycott of Israeli goods, which was implemented soon after the creation of the State of Israel in 1948, helped the development of the high-tech sector. This was because Israeli companies, inasmuch as they were prevented from marketing their goods in the neighboring Arab states, were forced to target clients in the more sophisticated markets of Europe and the United States.
In the past six to seven years, the boycott has largely disintegrated, opening new doors. On October 1, 1994, the Arab Gulf states publicly announced their support for a review of the boycott, and in effect abolished the secondary and tertiary sanctions against Israel. According to the Seattle Times, for more than 40 years after Israeli independence, the Arab boycott cost the Israeli economy an estimated $30 billion in potential investment from companies anxious not to anger their Arab clients by openly being involved in the Israeli market.
And now, Israel’s newfound prosperity has served to inoculate it from the threat of boycott. With its current status as the high-tech powerhouse, analysts today feel that Arab attempts to isolate the Jewish country would result in a “boomerang effect,” hurting the Arab economies more than they do Israel.
Within Israel, economic disparity is also a concern. Economists refer to the digital-divide, where the “haves,” who are employed in the technology sectors, and are earning considerably more than most of the “have-nots,” who for most part are employed in traditional sectors of the economy.
"The gap between rich and poor here is the fastest-growing in the Western world," remarked Avraham Burg, speaker of the Knesset, Israel's parliament. "Plus we have all our other schisms: religious-non-religious, Jews and Arabs, right and left, immigrants and native Israelis. And all the gaps overlap each other."
According to U.S. Treasury Deputy Secretary Stuart E. Eizenstadt, who recently spoke at the University of Haifa: "Ultimately, an information revolution that fails to include large parts of the Israeli population will fail all Israelis."
Eitan Raff, the chairman of Bank Leumi, Israel's second largest bank, agrees. "The social fabric here is very delicate," he said, "If somebody's making 4,000 shekels [approximately $1,000] a month and others are making millions, that becomes a social issue."
But, by its very structure, the high-tech industry is unable to absorb large numbers of employees from the traditional business sectors. The specialized research and development functions associated with high-tech demand highly trained employees. In fact, Israel’s fast-expanding high tech sector is chronically short of workers, and has been debating about possibly importing foreigners to fill the gap.
Israel’s neighbors could be beneficiaries. But political and cultural differences still serve as a barrier to Arab engineers seeking employment with Israeli firms. The Center for Jewish-Arab Economic Development (CJAED) recently held a forum on information technology, with the intention of bringing Israeli and Palestinian hi-tech companies closer together. But despite both sides' willingness to build bridges between business interests in the private sector, a glass wall still separates them from full normalization.
Many believe that Israel would gain from opening its high-tech job market to neighbors, and the benefits would not be only economic.
"The Palestinians must be as advanced in high tech as us,” said Shimon Peres, the former Israeli prime minister and the current minister for regional economic development, in an interview with Mid-East Elixir. “Our philosophy must be that the better the Palestinians have it, the better neighbors we will have."
Dr. Hisham Awartani, the head of the economic department at the Center for Palestinian Research and Study, commented: "This relationship is lucrative for both sides. But Palestinians have largely done manual labor for Israelis, much of it in the construction industry. That's a wasted resource in terms of brainpower. If you talk about IT, computers, programming, and software, I think the Palestinians have a lot of potential."
Still many Israeli entrepreneurs think twice before hiring Palestinian workers, when they can out-source to India and other low-wage countries, the Jerusalem Post reported. And the reluctance to encourage bilateral cooperation is endemic. "It is a leap of faith [for Israelis] to do business in the Arab world," remarked Omar Salah, an Arab businessperson, who was among the first to develop joint Israel-Jordanian ventures in the years following the peace treaty. "People are still skeptical here in Jordan. Many haven't buried the hatchet."
Yet, a small number of Israeli firms have been successful in business ventures across the Arab world, and some are convinced that, ultimately, Israel’s good fortune in the high-tech arena will prove to be the panacea for the region’s economic predicament.
"In the end the [Middle East] conflict is economic," said Stef Wertheimer, an Israeli business leader. "The difference between us and our neighbors is too much. Peace will come the moment all those countries make $6,000 per capita." – (Albawaba-MEBG)
© 2000 Mena Report (www.menareport.com)
