by David Makovsky; Douglas Pasternak; Matthew Cooper
The stiff breeze that blew across the swatch of asphalt where the Israeli-Jordanian peace treaty was signed last week carried a distinct whiff of entrepreneurial spirit. On the fringes of the formalities, an Israeli bottled-water company hawked its wares. Royal Jordanian Airlines handed out caps -- as did the Israeli airport authority. "Blessed are the peacemakers," they read, in Hebrew, English and Arabic.
Peacemaking, it turns out, is more than its own reward. "The Middle East is open for business," U.S. Secretary of State Warren Christopher told reporters en route to last week's treaty signing, which ended the 46-year state of war between Israel and Jordan. Despite setbacks from terrorist attacks and a still- reluctant Hafez Assad of Syria (box, Page 46), the Mideast is poised to begin to collect an economic dividend from its investment in diplomatic peace.
At a first ever Arab-Israeli business conference, business and political leaders from 80 nations are meeting in Casablanca, Morocco, this week to explore possibilities for new economic cooperation in the region. Their optimism is tempered by the reality that while future prospects may be lucrative, progress for now will come in fits and starts.
Gains. Israel, isolated from markets and business for four decades by an Arab boycott of trade and a so-called secondary boycott of companies that do business with Israel, stands to gain the most the quickest -- but not much yet from its Arab partners.
Israel's modern economy towers over those of its Arab neighbors: Its $60 billion annual gross domestic product equals that of Egypt, Jordan, Syria and the occupied territories combined. Their governments can't afford many of Israel's industrial and high-tech exports, and their average citizens earn only about $1,000 per year, not enough to buy many Israeli consumer products.
Israeli firms, therefore, are looking first to more distant markets. Since Mideast peace talks started three years ago, nearly 50 nations have established or renewed diplomatic ties with Israel. Israel's $20 billion export market is growing at about a 10 percent annual clip -- and about 45 percent of new exports are to markets that virtually did not exist three years ago. Exports to Far Eastern and Eastern European markets have shot from almost nil to a fifth of Israel's total.
One of the biggest early gainers has been Israel's arms industry. During the Arab boycott, many nations obtained Israeli military goods and services behind closed doors so as not to arouse ire in Arab capitals. Now many of those nations are openly confessing their Israeli connections -- and new customers, particularly in Eastern Europe and the former Soviet Union, are lining up. In 1993, as the worldwide arms market shrank, Israel was the only country to increase its arms exports.
Romania, the Czech Republic, Poland, Thailand, Singapore, China and India have signed agreements worth several hundred million dollars for Israel to upgrade and retrofit their 1960s and 1970s vintage Soviet and Western aircraft and tanks. This year, France lifted an arms embargo against Israel it had imposed during the 1967 Six-Day War and signed an accord with Israel on weapons research. Britain followed suit and lifted its own arms embargo against Israel imposed during the 1973 Middle East war; it is now exploring the possibility of importing Israeli missile technology. India, Turkey and Thailand are interested in Israel's Unmanned Aerial Vehicles. Muslim nations such as Malaysia, Bangladesh and Indonesia are also exploring the possibility of new or expanded military ties with Israel.
Many of these customers also are buying Israel's high-tech communications and electronics equipment, manufactured goods and medical instruments -- as well as agricultural products, another healthy Israeli industry.
By contrast, Israel's exports to Arab countries total only around $400 million annually. All sides are now exploring ways to increase that total.
Starting this week, the border between Israel and Jordan is to open for average citizens and commerce. Jordanians are keen to use overland routes to Israel's Haifa and Ashdod ports, which would provide a more convenient Mediterranean outlet for goods heading for European markets. Before the treaty, Jordan had to ship goods via a circuitous route through Aqaba, its Red Sea port. Israel can benefit from sharing the use of Aqaba's facilities, which would free up its own Eilat port to handle solely tourism traffic.
Banks, textiles. Elsewhere, in joint projects with local Arabs, Koor -- Israel's largest conglomerate and pioneer in efforts to forge links with the Arab world -- has opened up an office in Morocco, dispatched a representative to Jordan and is considering opening up a branch in Tunisia. Bank Leumi is joining hands with a Moroccan bank in establishing a venture in the Palestinian autonomous areas. Delta HaGalil is subcontracting textile work to Egyptian companies.
Officials from the Palestine Liberation Organization who arrived in the newly autonomous Gaza Strip and Jericho this past summer made clear they wanted nothing to do with the Israeli economy. But as Benny Gaon, chief executive officer of Koor, puts it: "Moses is Moses, but business is business. I think the Palestinians are realizing that we want to assist them economically and not take advantage." Gaon recently signed an agreement with Yassir Arafat to provide cement, iron and steel pipes for Palestinian construction projects, and other Israeli- Palestinian cooperation is getting started as well.
Progress, however, has been temporarily braked following the fatal Tel Aviv bus bombing; Israel has since closed off the occupied territories indefinitely, shutting out 60,000 Palestinian day laborers, and announced it would import 19,000 workers from other countries, including Portugal and Romania.
Still, Palestinian business is expected to gain, eventually. No longer hampered by high Israeli tariffs and other restrictions over their exports, the Palestinians are expected to sell textiles and other products in the Israeli market. Because their labor costs are lower, Palestinian farmers also are expected to make inroads into Israeli agriculture markets.
Chronic terrorism, meanwhile, has hurt tourism, which would surely boom with a safe peace. During the first two months of 1994, tourism to Israel shattered records. But the February attack on Palestinians in Hebron by Jewish gunman Baruch Goldstein scared away tourists. The bus bombing in Tel Aviv earlier this month will hurt as well.
Pitching in. The Clinton administration, for its part, is nurturing the fledgling economic ties in the region. In his speech to the Jordanian Parliament last week, Clinton promised to help establish a Middle East Development Bank to finance projects in the region; in addition, the Overseas Development Investment Corp. will provide $75 million to promote new private investment, most of it in Jordan. As a reward to Jordan for embracing peace, Congress already has voted to forgive $700 million in Jordanian debt.
Many issues remain. The recent decision by the six Persian Gulf states to drop their secondary embargo and stop blacklisting foreign firms that do business with Israel has not yet been followed by formal lifting of the prohibition for direct trade between Israel and most Arab states. And one of the largest cooperative endeavors between Israel and the Arab world, a project that has been quietly discussed for over a year, has hit snags. Israeli officials say the Persian Gulf state of Qatar is demanding exorbitant prices in return for linking a natural-gas pipeline to Israel, which would be used as a base for transshipments to Europe. Earlier this month, Egypt's Suez Canal Authority chairman Mohammed Ezzet Adel told Egyptian parliamentarians that Egypt was willing to reduce canal transit fees by 35 percent for the next 35 years if Qatar will abandon the project. "We are not
