The Economics of The Peace Process

[Joel Bainerman]

It has been five years since the signing of the Oslo Accords in Washington. At the time, there was much hoopla about joint business ventures between the Israelis and Palestinians that, all hoped, would go far in bringing a stability to the region that would be more practical than ideological. But a half-decade later, politics still plays a major role in keeping the two business communities apart: While Israel wanted to rush into such business relations, the Palestinians stalled. They believed that it would be in their best interest if foreign businessmen other than Israelis would be their partners.

Simply put: They were wrong.

Foreign businessmen have rejected outright business opportunities on the West Bank and Gaza. Whether it be the unstable political situation, the lack of a large local market, or the dearth of a western-style economic infrastructure, the fact is the only community of businessmen interested in joining forces with the Palestinians are the Israelis --- and even now that interest is waning in favor of the business opportunities that await Israeli industrialists in Jordan.

INDUSTRIAL PARKS: THE FIRST STEP

When Palestinians start looking for investors to help them build an industrial park or a new factory, the only people standing in line are their old enemies, the Israelis.

Israeli government officials are among the most fervent supporters of the plan to build industrial parks for the Palestinian Autonomy as an answer to crushing unemployment in Gaza and the West Bank. Yet, as Israel and the Palestinian Authority recently concluded negotiations on the basic framework for the parks, the key issue remains: Who will invest in an area that is politically volatile and has no clear sovereignty?

Ironically, it appears that Israeli investors, rather than Palestinian or foreign investors, are the most likely and, indeed, the most eager to invest. After months of debate, it is now agreed the parks will be at the border line on the Palestinian side. The borderline location -- rather than deeper within the autonomy area or even on the Israeli side -- was chosen because Israeli investors would not be willing to go further into the autonomous area. Between attracting foreign investors or Israeli investors, many believe the Israelis are the far better bet, as they know the conditions in the region and can operate within the existing framework.

“It will be easier to bring in Israeli companies because they are used to us,” says Suheil Gedeon, a banker and a member of the Palestinian business elite. “We have been living together for 30 years.”

A recent study commissioned by the World Bank backs gives crediblity to that observation. Gershon Baskin of the Israel/Palestine Center for Research and Information conducted the survey, which polled 53 major potential investors. “Of the three separate groups [we surveyed] -- Israelis, overseas Palestinians and the international companies -- those most anxious to make an investment, to make decisions quickly, and those that were most aware of the situation, were the Israeli companies,” Baskin said.

“The Israeli companies, given the incentive package and guarantees presented to them, almost all said they are prepared to make an investment as soon as possible,” he added.

The problematic side of Israeli investment may be, however, future Palestinian resentment of dependence on the Israeli economy and infrastructure, observes Baskin.

“Opponents,” he believes, “might call it a new form of ‘Israeli colonialism.’”. Why are Palestinian investors less enthusiastic? The World Bank survey also revealed that overseas Palestinian investors were worried about the involvement of the Palestinian Authority (PA): Put bluntly, the less the Arafat regime was involved, the more encouraged they would be to invest. In part to answer this concern, and partly to protect the investor from whoever the power may be -- PA, PLO or the Israel Civil Administration -- the World Bank is recommending the creation of a Palestinian Industrial Estate Authority, in effect an independent agency, to shield the investor from bureaucratic hassle and malfeasance. While the Palestine Authority (PA) is eager for any investment in the autonomy, many observers claim the regime has been dragging its feet in building up thenew economy. There is no comprehensive plan for development of the autonomy, nor a coherent trade policy. Most experts agree that these factors -- more than any others -- are what is keeping foreign businessmen away. The PA did not bother to erect any industrial laws, or incentive programs for investment. The tax system does not work and tax policy is unclear.

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