GROWTH FROM PEACE
(Article by Dr. Rafi Bar El, "Globes", 29.03.96)
IT IS IMPOSSIBLE TO OVERLOOK THE IMPORTANT CONTRIBUTION OF THE PEACE
PROCESS TO ISRAEL'S FAST ECONOMIC GROWTH IN THE PAST FEW YEARS. THE PEACE
PROCESS HAS FAR MORE SIGNIFICANCE THAN THAT OF FAST PACED IMMIGRATION.
In the various examinations of the growth process of Israel's economy over
the past few years, peace process contributions have never been denied...
Conditions of political stability, or expectations of such, decrease the
risk factors for investment, strengthen the potential for profits, and
subsequently form a base for economic growth. Lack of stability and danger
of war are a sure recipe for deterring investors.
Investments in Israel have grown tremendously in the past few years.
During 1991-1995, investments in permanent assets rose, in real terms, an
average of 13.5% a year, compared with an average of 6.8% for the five
years beforehand. Foreign direct investment rose from the insignificant
number of $81 million in 1990, to about $750 million in 1993 and 1994, and
to more than $2 billion in 1995.
This high level of investment formed a wave of growth in the business
sector's excess capital that will continue over the next few years, even
if the level of investments stabilizes at a level close to the present
level. Statistics from the National Authority for Economic Planning show
continued growth in the business sector's excess capital at more than 8%
per annum through the end of the century.
Clearly, mass immigration enabled an increase in investments because it
made them more worthwhile, according to Plessner. Expected capital yield
is an important factor in the investment decision. However, alongside
this, one cannot doubt that another critical factor is the risk
accompanying this yield.
The rise in the capital yield would not have brought so many investments
if it was not also accompanied by a reduction in the risk factor, as a
result of the peace process. Improvement in Israel's rating by various
international organizations, a stable atmosphere, and expectations in the
continuation of the stabilization process, will undoubtedly increase the
flow of investments. It is a fact that the growth in capital investments
surpassed the growth in manpower, based on increased immigration and
natural growth.
The influx of immigrants caused an incredible growth in Israel's economic
growth potential. However, the potential's existence cannot be a hostage
to its implementation, and equal weight is required to balance demands and
GDP growth. In many circumstances of mass immigration, an increase in
manpower results in a significant increase in unemployment, especially
when immigration does not parallel demand.
Though the large flow of immigration to Israel was accompanied by a rise
in demand for goods by the population itself and the public sector, this
rise was not sufficient to fuel economic growth without the rise in
exports. The peace process was accompanied by the development of new
markets for Israeli manufacturers and an increase in the mix of countries
and companies which provided imports. This growth in potential markets,
for both imports and exports, strengthened economic efficiency by allowing
an expansion of economic tactics.
Israeli export statistics during the period of 1991-1995, point to an
average rise in exports of 8.6% per annum, compared to 4.1%, during the
previous five years. Assessments by the National Authority for Economic
Planning for the coming five years point to the trend's continuation, and
even its strengthening on the basis of statistics that show a steadying of
immigration. The quick rise in the amount of exports during the past years
is more pronounced than the overall increase in global trade, and cannot
be explained solely by immigration.
In the area of tourism arrivals which are export services it is
unreasonable to argue that the peace process and growing stability are not
important. The number of tourists in Israel was 1,132,000 in 1990, fell in
1991 during the Gulf War to 951,000, and went up by more than 50% in 1992,
and has continued to rise at higher rates, until reaching 2,214,000 last
year. In other words, last year it was double the number that it was in
the years 1990 and 1991. It is very difficult to believe that growth by
these amounts would have occurred without the peace process and without
expectations to the calming of the security situation.
There is no doubt about the importance of immigration's contribution to
the economic growth of the past few years, yet one also cannot overlook
the similar importance of the peace process. Furthermore, it is impossible
to differentiate between the two. Likewise, it is very likely that without
the peace process, immigration would not have occurred in the same
intensity, and its effect on the economy would not have been so fully
expressed.
The early waves of immigration were results of the situation in the former
U.S.S.R., but their continuation was certainly dependant upon Israel's
absorption of the first wave of immigrants. The quick contraction of
unemployment during the quick absorption of immigrants to the labor force,
and the related atmosphere of security, continued to encourage the influx
of immigrants.
Without the peace process and its economic influence, it is possible to
say that, today, we would find ourselves with fewer immigrants, with far
more unemployed immigrants, and with great failings in their overall
absorption.