April 14, 1999. Twenty Israeli textile manufacturers spend the day in Gaza - touring spinning, sewing and dyeing plants, meeting with Palestinian Minister of Industry, Dr. Sa'adi el-Kronz, attending the opening of the latest factory in the Gaza Industrial Estate (known in Israel as Karni), a joint venture between Fayek Bilal and Kitan industries. The group is accompanied throughout the day by representatives of the Palestinian Ministry of Industry, who emphasize, as does the minister, that the Palestinian Authority (PA) encourages Israeli-Palestinian economic cooperation. Officials from the Authority spell out the practicalities of locating in Gaza, and provide a copy of the Palestinian Investment Law.
The manager of one of Israel's leading textile companies joined the tour - in part to see the premises of the Gazan manufacturer whom he had met at the December meeting, and with whom he is negotiating a joint-venture agreement to open a production line in the Gaza Industrial Estate. This Israeli company, like many others, is moving its production facilities out of Israel. Until the December meeting, the management had been considering Eastern Europe. Now they are looking at Gaza.
Both meetings were arranged by the Center for Jewish-Arab Economic Development - an Israeli NGO that has been operating since 1988 to encourage economic development among Palestinian citizens of Israel, as well as economic cooperation between Arabs and Jews (within and across the Green Line) - and WAVE: The Palestinian Media Institute. Since 1993, WAVE and the Center have brought together over 2,000 Palestinian and Israeli - as well as Jordanian and Egyptian - businesspeople in focused business conferences and forums in various areas: textiles, construction, tourism, plastics, foodstuff and software.
Trends in Palestinian-Israeli Cooperation
With the perspective of six years in the field, what can we learn about Israeli-Palestinian economic cooperation? What happened during the Netanyahu period, and where do the trends point in the coming period?
Decreasing Politicization: When we first began working in 1993, the Palestinian business community was wary of "jumping into bed" with Israelis. Few were interested in renewing pre-Intifada subcontracting relationships as if nothing had happened. Rather, there was cautious interest in building partnerships.
Palestinian politicians pushed for economic development of the Palestinian economy - independent of Israel. Many officials of the PA actively discouraged meetings such as those we arranged, and many businesspeople followed their lead, declining to participate in public events because of the political unacceptability. Yet, a major part of the Palestinian business community still saw its economic future as being tied to Israel's. These business leaders continued to seek cooperation despite the official discouragement of the PA.
After Netanyahu was elected, and political cooperation broke down, both the Palestinian and Israeli business communities started to operate more independently of the political sphere. For Palestinians, a number of factors probably went into this:
• economic need (the Palestinian per-capita income fell 39 percent over the years 1993-1996);
• increasing ease of entry for Palestinian businesspeople into Israel (the number of entry permits to businesspeople rose during this period); and
• growing realization that politicians will not solve the problems of businesspeople.
If I Am Not for Myself, Who Will Be for Me?: For the Israeli business community a similar process was underway. Sorely disappointed with the results of the 1996 Israeli election, and left out of the "old boys' network" of Netanyahu's government, Israeli business leaders also began to seek direct routes of cooperation with Palestinian business and businesspeople in the Arab world.
Narrowed Options: Many Israeli companies, which had begun exploration with Jordanian or other Arab companies, found that the political atmosphere had a tremendous negative impact on their ability to move forward. As doors closed to Israeli businesspeople in the Arab world, interest increased in the Israeli business community in finding Palestinian partners.
Decreased Expectations, Increased Realism: Over the last six years, both Israeli and Palestinian businesspeople have become more realistic about what can actually be obtained through cooperation. Israelis have calmed down, and begun to realize that, just because cooperation looks good to them, it may not look as good to their Palestinian counterparts. The rules of the game have changed somewhat. No longer is Israeli law the only factor in the negotiations between Israeli and Palestinian partners. The Palestinian Authority has, at various times, passed laws or regulations limiting the freedom of Israeli companies to operate in Palestinian areas.
Border Industrial Estates: Another factor in favor of cooperation is the opening of the Gaza Industrial Estate. As envisioned, this area, with its semi-permeable membrane (Palestinians and Israelis can both enter, but they can only leave through their own doors), facilitates business cooperation with a feeling of security. It solves the problem of the movement of people, and eases restrictions on the movement of Palestinian goods into Israel. To date, 33 companies have signed leases in the Gaza Industrial Estate. Of these, 8 are Israeli-Palestinian joint ventures or sub-contracting arrangements, and 1 is a wholly owned Israeli company.
The success of Gaza has given a push to the development of 4 additional border estates in Jenin, Hebron, Tulkarem (Khadoori) and Rafah. The latter two are dedicated to high-tech, and the Rafah area is being developed in partnership with leading Israeli industrialist Stef Wertheimer. The management of all the areas - by private Palestinian companies in cooperation with an authority operating in the framework of the Palestinian Ministry of Industry - is business-oriented. Over the years, the managers of the areas have increasingly adapted to the interests and fears of Israeli (and other international) firms. The sales pitch rarely includes ideology, but rather practical considerations: convenience, Palestinian investment laws, savings in production costs, etc.
The result of these trends and developments is that, during the years of the Netanyahu government, Palestinian and Israeli businesspeople have become more active in seeking each other out. Over the past years, many arrangements have begun between Israeli and Palestinian medium-sized enterprises: in trade, tourism, services, light manufacturing, and even computer software and dealerships. In many cases, these contacts were a result of the meetings and forums arranged by the Center for Jewish-Arab Economic Development and WAVE.
Large Israeli companies, like Kavei Zahav, have provided major business services to the PA, in this case, PalTel. The interest of Stef Wertheimer in economic cooperation with Palestinians has developed over recent years, culminating in the current initiative to develop a joint industrial area.
Unlike the political process over the past years, economic relations between Palestinians and Israelis have not been frozen. Rather, they have continued to develop in a slow, yet serious manner. Perhaps because of the slowdown, Palestinian and Israeli businesspeople have gained a period in which they have gotten to know each other, without rushing into business ventures.
What will happen to Israeli-Palestinian business cooperation in the current, more optimistic period?
I am a better practitioner than prophet in the field of economic cooperation. Yet, if forced to predict, I would guess that the trends described above will continue. The more favorable political climate will have a positive effect on Palestinian-Israeli economic cooperation, and we will see larger, especially information-based, companies seeking cooperation.
There are those who say that the reopening of relations with Jordan will come at the expense of the Palestinians. This may be true. However, I do not believe in one-way economic movements. I believe that Israeli businesspeople will more actively seek economic relationships throughout the area: with Palestinians, with Jordanians and with Saudis.
Because of the large wage differentials between Palestinians and Jordanians (wage rates are roughly 1.5 times higher in Palestine - $377/month as opposed to 250/month in Jordan), I would expect that the lowest technology business will move out of Israel/Palestine. However, because of the physical closeness, the networks of existing relationships, and the joint interest in having prosperity in the "Holy Land," I would expect to see an increasing volume of economic Israeli/Palestinian cooperation in trade, tourism and information technology.
According to Abdul-Malik Al-Jaber, executive director of the Palestinian Industrial Estate and Free Zone Authority (PIEFZA) in the PA, inquiries from Israeli companies wanting to find out about locating in Palestinian industrial estates have gone from 2-3 per week before the May 17 Israeli prime ministerial election, to 20 per week in June and July . The Palestinian participation in the Israeli Tech 99 Exhibition in Tel Aviv in late June brought 200 written applications for information from Israeli businesspeople. Meetings have taken place recently with the Israeli Manufacturers' Association; business contacts are picking up.
Israeli/Palestinian economic cooperation constitutes an increasingly important piece in the mosaic of relationships - political, economic and social - that are constantly being built in our region.