September 6th, 1993
THE PEACE ECONOMY - POSSIBLE SCENARIOS
The Israeli Association of Chambers of Commerce
1. INTRODUCTION
There has never been a better period for Israel than today from the
political and economic standpoint. This prosperity which started three
years ago, has picked up momentum with the commencement of the peace
talks and will receive another significant boost with the signature of
the 'Gaza and Jericho First' arrangement. This boom is expected to peak
following the signature of the peace agreements and the establishment of
normalization in the region.
Not only Israel will benefit from these developments. All the countries
in the region stand to benefit directly, and in one way or another,
indirectly - also countries outside the region. The economic benefit
from the existence of these agreements will primarily be expressed in
the medium and long run after their implementation. The economic
implications can be seen on two levels: the first, regionwide, i.e.
mutual and sweeping benefits which will thrive in the region as a result
of the normalization achieved, and the second - specific and unique
advantages for Israel (and for each country separately).
2. REGIONAL ECONOMIC ADVANTAGES
On the regional level, there are a number of prominent economic
advantages to be gained as a result of the peace arrangement. These
advantages have a global impact, and they are meant to be reflected in
each country in the region (although in varying degrees in each
country).
The following are a number of marked regional, economic advantages:
2.1 Lowering the Defense Burden
A regionwide political arrangement which will prove over time to be
reliable, will also create political stability, which is a
prerequisite for sound social and political systems. Increasing
political stability in the region will in the long run lead to a
significant slow-down in the militarization process (including
nuclear armaments). This process, which will be accompanied by
stepping-up the regionwide political security, will enable the
countries to reduce their defense burden and channel the newly
released resources for positive, alternative applications. Such a
process is likely to contribute to the welfare of those countries
that face difficult social and economic crises.
2.2 Oil Prices
Political and military stability in the Middle East will also have
an impact on global stability, primarily in terms of the crude oil
market. Thus, a positive effect may also be anticipated as far as
the world economy is concerned (which inevitably will also influence
the Israeli economy).
2.3 Stimulating Investments and Growth
Increased political and military stability in the Middle East will
directly minimize the risks involved in economic projects and
investments in the area. This will lead to a reduction in risk
premiums and the price of capital available to both local and
foreign entrepreneurs for financing their investments. The increase
in investments by Israeli and/or international groups will stimulate
economic growth in these economies.
The increase in investments will generally contribute to an
improvement in the business climate in the Middle East and to
normalizing the economic systems. It will also serve as an anchor
for social normalization within and between the countries
themselves.
2.4 Regional Common Market
Within the framework of the political arrangement and regional
cooperation, it is likely that a Common Middle East Market will be
established, although it is not clear to what extent such a
framework will benefit the regional economy, It seems that the
establishment of sub-regional trade blocs (e.g. a trade bloc that
will incorporate the economies of Israel, Jordan and Palestine) is
more viable and effective and will be of far greater economic value
than a regional common market.
2.5 Tourism
The easing of tensions and achieving normalization will encourage
tourism throughout the region. The region has the potential to
attract both vacation seekers and religious tourists, since it is a
pilgrimage center for all the religions. Appropriate investments in
infrastructures and joint and/or combined projects are likely to
give an enormous boost to the existing tourist movement, with all
its economic implications for the economies of the region.
2.6 The Labor Market
The peace agreements will probably lead to a number of developments
in the labor market in the region, primarily in Israel and the
autonomy.
The massive investments which will be directed toward abolishing the
refugee camps, improving the housing standard of the rest of the
population in the Territories and realizing the joint projects and
investments in various infrastructures, such as transportation and
communications, are likely to create an increased demand for
manpower. At the same time, it is anticipated that the boycott
imposed on the employment of Palestinians in the Gulf Emirates will
be abolished. These developments will create new jobs, stimulate
employment and finally raise the standards of wages (and living) of
the inhabitants of the Territories.
The labor market in Israelis expected to gradually lose its weight
as an employer of Palestinian labor, although the Palestinian still
be dependent on the supply of work from the Israeli economy.
2.7 Local and Regional Cooperation
The Middle East arrangement will prepare the grounds for economic
cooperation between the countries in the medium and long term. Such
cooperation will be expressed in exploiting the advantages in size.
The following are several examples of joint projects.
2.7.1 Tourism
Carrying out joint projects in creating the infrastructure for
tourism: airports, ports, marine and overland transport and the
development of joint tourist areas. Free tourist agreements.
Offering regional tourist packages to religious sites,
archaeological sites and vacation seekers. Development of joint
tourist services, such as joint overland transportation routes,
airline agreements, development of the Dead Sea area, etc.
2.7.2 Water Sources
Joint activity on the issue of water, including the development of
new water sources, erection of dams, prevention of pollution and
salinity of existing sources, rain intensification, purification of
runoff water, desalination of seawater in the Gaza Strip and joint
development of economical irrigation techniques.
2.7.3 Infrastructures
Setting-up joint infrastructures in the areas of marine and overland
transport, electricity and communications.
2.7.4 Agriculture
Cooperation in agriculture, such as routing water sources to arid
regions, joint use of irrigation methods and utilizing the Israeli
know-how and experience in this field; research and development of
agricultural products and fertilizers; storage of agricultural
produce, etc.
2.7.5 Environmental Protection
Cooperation on the issue of environmental protection, such as
preventing environmental pollution, nature conservation in tourist
areas and preserving the beaches.
2.7.6 Energy
Optimum utilization of joint energy facilities, such as erecting
joint power stations, laying a gas main from Egypt to Israel, etc.
2.7.7 Development of unique resort and spa areas (Dead Sea).
2.7.8 Financing Investments
Establishing a bank for regional development that will facilitate
the establishment and expansion of business enterprises that will
help in financing the development of the infrastructure.
The establishment of an investments center which will be financed by
Arab countries and the Gulf Emirates that will provide credit and
advice on regional development plans, as well as assistance in
establishing international relations for joint enterprise.
3. ADVANTAGES FOR THE ISRAELI ECONOMY
The implementation of the peace agreements will make it possible to
capitalize on Israel's economic and geographic advantages in many
fields, the mains ones being:
3.1 Israel as a Regional Center
The change in the economic appeal of the region is bound to attract
large-scale movement of investments and trade. Israel has relative
advantages in achieving this aim, enabling her representation as a
regional strategic center for international companies in the areas
of finance, management, logistics, training, etc. in addition to
taking advantage of the country's geographic location as a regional
forwarding and transport center.
3.2 Lifting the Arab Boycott
Since its existence, the Arab boycott has dealt a heavy economic
blow to the Israeli economy. This is expressed in shutting-off
export markets, raising the price of import sources, loss of
investments in Israel and raising the price of import and export
processes of the Israeli economy. The lifting of the Arab boycott
will remove all those difficulties and obstacles in trade and
business relations between Israelis and business groups in other
countries outside the region.
3.3 Foreign Trade
The peace agreements will open markets that until now were
completely closed-off to Israel. Despite the fact that Israeli
export products are by nature suitable for more developed markets,
most probably markets will be found for Israeli products also within
the region. At the same time, the import of goods from Arab
countries is likely to lower the prices of some of the import
sources.
3.4 Economic Cooperation
Regional economic cooperation, primarily in the form of business
partnerships with Palestinian and Arab businessmen, is likely to
serve as a new avenue of activity for Israeli entrepreneurs and
businessmen.
Such cooperation is likely to succeed also in view of the
experience, contacts in the Western and Arab world, the
technological know-how, the familiarity of Israeli companies with
foreign markets and other advantages, such as the Israeli
businessman's language and culture.
3.5 Strengthening Commercial Relations
Ties with the Palestinian economy has particularly important bearing
on the strengthening of cooperation. Restoring normalization to the
region will not only to lead to a renewal of relations that were
frozen, but will also result in the establishment of new business
relations. In this context, we may expect the strengthening of ties
in the field of sub-contracting for the local industry and Israeli
companies turning more and more to the Territories for commercial
services and various light industries.
3.6 Israel is likely to benefit from the utilization of other relative
advantages in its relations with the countries in the region,
namely:
3.6.1 Manpower
Exploiting the economy's relative advantages of its highly skilled
and educated work force with a Western mentality, whose standard has
been raised even more with the recent influx of immigrants from the
former Soviet Union.
3.6.2 Transportation
Utilization of the existing transportation infrastructure in which
billions of dollars have been invested in the last year and will be
injected in the coming years. Taking advantage of Israel's
geographic location as a center and bridge for the countries of the
region.
3.6.3 Ports
Utilization of the existing ports in Israel and their sophisticated
equipment as bridges to all the neighboring countries.
3.6.4 Financial Services
Utilization of financial and business services, such as developed
banks existing in Israel today.
3.6.5 Agriculture
Making the most of Israel's advantages in promoting agricultural
projects while exploiting Israel's relative advantage in this field
through the transfer of technology, business counselling and Israeli
export of applications and equipment for agriculture.
3.6.7 Computers and Communication
Exploiting the relatively developed computer and communications
services in Israel and making them available to the business sectors
in the Territories and neighboring countries.
3.6.8 Tourism
Encouraging tourism to Israel, as mentioned above.