There is a widespread belief among Israelis that the peace process
is irreversible and that we are moving toward binding peace
agreements with our Arab neighbors. A system of guarantees based
,on buffer zones and demilitarized areas will initially be
necessary to secure the agreement; but wide sectors of Israeli
society and its business community think that economic cooperation
between the former enemies is the best guarantee for the future.
Only through the development of common economic interests and the
free movement of goods and capital will it be possible to build a
permanent and solid edifice of peace.
The Israeli business community seems ready to face the future with
optimism, but without euphoria; without a patronizing attitude, but
with a realistic approach to common needs and interests. We should
not see the Middle Eastern market as virgin land waiting only for
the Israeli "super-economy" to come and conquer it. The market,
though geographically large, is still relatively small; regional
trade is modest and must be developed and intensified if it is to
sustain growing economies based on real economic cooperation. Right
now the gross national product, GNP, of all the countries in the
area is only some $500 billion - the size of Canada - which means
that the European and North American markets will continue to be
important for Israel. If the regional market is to become a serious
destination for Israeli exports, there will have to be higher and
more diversified levels of consumption, as well as the removal of
protectionist and bureaucratic regulations.
The problem facing us is not, however, merely one of marketing or
consumption capacity.
Essentially we face a political and cultural challenge. Decades of
confrontation have created barriers of hostility and mistrust.
These must now be removed in order to develop business strategies
with our neighbors. The development of economic relations with the
Arab countries will take time and will inevitably be accompanied by
setbacks and frustrations. These stem not only from the objective
difficulties inherent in the transition from confrontation to
cooperation, but also from the different levels of expectation. For
example, the Israelis would like to see an immediate end to the
Arab boycott, whereas the Arabs foresee a far more gradual
approach.
Israel may find more tangible and immediate compensation in the
indirect benefits of peace. Even though military spending will not
immediately decline, trade may expand and investment increase, as a
result of increased security and stability and the erosion of the
Arab boycott. At present Israel attracts foreign investments of
only some $200 million annually (less than half of one percent of
its GNP). A capital inflow of three percent of the GNP would more
than match current economic assistance from the United
States.
Future decisions about economic cooperation can only be the result
of independent sovereign decisions of the parties concerned. At the
present time, the Palestinian economy is almost totally dependent
on Israel; but in the context of a settlement it may be in the
interest of -both parties to create a common economic area. If the
flow of Palestinian manpower to Israel is to be stopped, it must be
done gradually, as economic development in the Palestinian area is
achieved. In order to stimulate such development, the Palestinians
will want to have lower rates of income tax and value added tax,
VAT, than the Israelis; but Israel will strive to have the
differences as narrow as possible to prevent unfair competition.
The Palestinians might negotiate free trade agreements with both
the Israelis and the Jordanians, leading to a customs union between
the three economies.
For Israel the challenge is to move to a phase of growth, based on
joint Israeli Palestinian ven¬tures, designed to create
economic growth that can absorb the Palestinian labor now working
in Israel, and Palestinians returning from their diaspora. This can
only be achieved by large-scale industrialization, focused
ini¬tially on agriculture, construction, and
infrastructure.
The Israeli business community is ready for open-minded
coope¬ration with Palestinian business¬men, both in the
stage of developing basic industries, and in the subsequent move
toward an export-oriented economy. KOOR has recently taken an
initiative, agreeing to be a minority partner in joint ventures
with Palestinian, European and other Arab partners. Such ventures
will invest in the Palestinian economy in food industries,
telecommunications, tourism, transportation, cement and
construction. A detailed proposal is currently being studied by a
Spanish bank, a Moroccan company, and Palestinian
en¬trepreneurs.* The Spanish and
Moroccan governments are opti¬mistic about the project. We in
KOOR believe that we might establish the foundations of a highly
interesting Mediterranean economic - and maybe political - triangle
that is worth developing further. KOOR also stands ready to
transfer some of its plants to the Palestinian autonomy on a
strictly business and profit basis. Some Israeli industries, which
are based on Palestinian labor, will have either to scale down
their operation, or move to the Palestinian area. This is the only
way that our economies can develop business opportunities in a way
that is complementary. Many other projects can be explored if the
political will exists.
The clear Palestinian intention to restructure their economic
relations with Israel on a more equitable basis does not have to
mean disengagement. There are wide possibilities of
rationa¬lization or complementarity. Nor is it inevitable that
the larger Israeli economy will dominate the smaller Palestinian
one. The current Israeli domination is a result of the political
situation. If the association is free and equal, the smaller
economies benefit as much as the larger ones from trade and
cooperation. In the European Community, for example, the Benelux
countries have benefitted more than Germany or Britain. In
conditions of peace, the pattern could be repeated with the
Palestinians and the Israelis.
So far our contacts with Palestinian entrepreneurs regard¬ing
joint business ventures have been most gratifying and interesting.
At KOOR, we are receiving dozens of approaches from Palestinians
and others throughout the Arab world. Our approach is that we want
to move to a phase that goes beyond buying and selling to the
establishment of strategic economic ventures with Arab partners. We
think we have achieved that already with one Arab country, and we
are proceeding with similar ventures in other Arab countries, the
names of which would be premature to disclose at this time.
However we are interested to know whether the Palestinians have
taken a political decision to facilitate strategic economic
cooperation with Israel. As far as we know, they have not. The
Palestinians, currently in the throes of transition toward the
responsibilities of statehood, are in a state of understandable
confusion and disorientation. They need time to look around and
define their priorities. Israeli euphoria looks frightening to
them. They don't want military colonialism to be replaced by
economic neocolo¬nialism. It is this political constraint that
is now the major obstacle to economic cooperation.
We have an obligation to respect Palestinian sensibilities and work
to convey a clear message that the phase of political and economic
domination has come to an end; we are ready for cooperation based
on dignity and mutual respect. It is not for us to define their
priorities; but when they themselves define them
indepen¬dently, we will be ready to cooperate by investing
money, know-how and energy - always on a minority basis. We are
convinced that this is the best way to serve our respective
economies and, what is more important the interests of peace.
We in the Middle East cannot rely on the West, which is already
overburdened with the former Soviet Union and Eastern Europe. Our
future lies in our capacity to devise mechanisms of economic
cooperation that will attract investment on a strictly
profit¬-oriented basis. In today's world it is imperative that
we join the modern trend of regional cooperation, if we are to win
the future.
(Extracts from a speech made at the Jerusalem Business
Conference, November '93.)