The real hope of economic peace

Everybody knows the core issues between Israelis and Palestinians, except for the one that will matter the most and can be acted on immediately, before any comprehensive deal; the one where Israel’s concessions will not compromise its security but enhance it. I am speaking of Palestine’s economy, specifically, its private sector, the driver of civil society and spine of any future state. Israeli Prime Minister Benjamin Netanyahu talks about "economic peace," but seems to mean little more than giving Palestinian laborers more jobs in Israeli agriculture and construction projects. What Palestinians need, rather, are entrepreneurs, managers, and professionals with the freedom to build a growing node in an urban and global network. The latter have made a remarkable start, but the occupation is thwarting them in ways few outsiders appreciate.

Yes, land claims, especially the division of sovereignty in Jerusalem, compensation for Palestinian refugees, etc., have great symbolic importance to both peoples. Yes, Jewish settlements confound efforts to draw borders and should be frozen; yes, moderates on both sides confront "whole land" fanatics they would rather not fight for the sake of the other side. Still, if we ever get to a deal, the size of each territory will quickly seem trivial.

Israel and Palestine, together, are about the size of greater Los Angeles; the distance from Nablus to Tel Aviv is something like San Bernardino to Santa Monica. The West Bank and Gaza, Palestinians say, is only 22 percent of historic Palestine. But that is about the size of the territory most Israelis live on. In fact, the corridor from Ashdod to north of Tel Aviv–where 40 percent of Israelis live, and at least half of Israel’s GDP is generated–is about the size of the Gaza Strip. Can we get real about what "two states" will look like?

Each side will be a culturally distinct city-state, building upwards, integrated with the other in a business ecosystem extending to Jordan, and sharing everything from water to currency, tourists to bandwidth. Over 80 percent of Palestine’s trade is with Israel. What won’t seem trivial is the capacity of Palestine’s economy–currently one-fortieth of Israel’s–to create employment. The mean age of Palestinians in the territories is about 19 years old. If we assume normal rates of growth, and the return of only half of the refugees to a Palestinian state, Palestine would soon become an Arabic-speaking metropolis of perhaps 6 million to 7 million people, radiating east from Jerusalem, and facing off against the Hebrew-speaking metropolis, anchored by Tel Aviv. Olive groves, picturesque as they are, will seem beside the point. So will military notions like strategic depth.

The good news is that the Palestinian private sector, though small, is prepared for a take-off. There is a tight-knit, highly competent Palestinian business class already running enterprises from pharmaceuticals to supermarkets, telecommunications to software solutions. Palestine’s billion dollar sovereign wealth fund, the PIF, has been investing strategically in construction and wireless telecommunications; it is transparently run by Mohammed Mustafa, a former World Bank official, close to Prime Minister Salaam Fayyad–in effect, the Ramallah bourgeoisie’s chairman of the board. The Palestinian stock market lists companies worth only about $2.5 billion, but it has been growing at over 20 percent a year. Palestinian universities graduate 1,200 computer scientists annually.

The Palestinian Authority gets about $2 billion from donor countries a year, a large portion of it wasted on patronage jobs.  Part of what has stifled entrepreneurship is old Fatah cadres running monopolies from cement to petroleum. But public sector salaries, along with remittances from family members working abroad, at least wind up in bank deposits. Bank of Palestine CEO Hashim Shawa estimates that about $6 billion in total deposits are available for investment in genuinely competitive ventures. At least twice that amount is in Palestinian-controlled banks in Jordan. Regional investors know Palestinians are relatively well educated and need one of everything.

Which brings us to the bad news. Revealingly, Palestinian banks have been unable to lend more than $1.5 billion to credit-worthy business plans. For when you look at all of the things an ordinary businessperson takes for granted–mobility, access to markets, talent, suppliers and financial services–you see the frustrating effects of an occupation designed to advance the settlers, not Palestinian development.

Problems of mobility are most widely reported: over 60 percent of land in the West Bank is so-called Area C–controlled by the Israeli army to secure Israeli settlements, but turning Palestinian cities into economic islands. Try growing a supermarket chain when your just-in-time logistics system has to deal with 600 roadblocks; try planning meetings to open a new store. The drive from Ramallah to Jerusalem should take about 12 minutes, but with the checkpoints, it’s normally an hour, and that’s if you have permission. A Palestinian businessman routinely waits a half day just to collect an Israeli permit to enter Jerusalem and begin the journey. The World Bank estimates that, in spite of a projected 6-7 percent growth, per capita GDP is falling and unemployment may be as high 20 percent.

But other problems are just as serious. Businesses need world-class managers, who have to be able to travel freely. Entrepreneurs from the Palestinian diaspora, if born abroad, have to fight for years to get residency permits. The handful who succeed cannot then use Ben Gurion Airport or come to Jerusalem, but suffer the same restrictions as locals. Components for Palestinian manufacturing are routinely held up in Israel ports, waiting for long security checks. (One Palestinian aluminum window manufacturer, denied a coating material that could be used to make explosives, offered to pay for IDF soldiers to supervise the entire process.) Palestinian banks cannot park their cash reserves in Israeli banks, losing tens of millions of dollars in interest. They also cannot set up branches or even ATMs in East Jerusalem, where unemployment is over 25 percent and 50 percent live under the poverty line.

I visited Ramallah’s $350 million Palestinian cell phone company, Jawwal, now facing real competition from the PIF-funded Wataniya. The CEO, Ammar Aker (recently promoted to run the $900 million parent company, Paltel), took me to the roof of his modern building and showed me what he sees. On one hill to the north is a settlement in Area C brandishing the tower of an Israeli operator, Cellcom.  To the south is another settlement with another tower. Cellcom gets about 10.5 megahertz of spectrum; Jawwal about 4.8 (spectrum, too, is a "security" asset). To get 3G and continuous coverage–what every Palestinian entrepreneur needs–you need to add a plan from an Israeli carrier.

Prime Minister Netanyahu has been bragging about Palestine’s growth. But under current conditions, the resilience of its private sector seems little short of heroic. Surely, he must know there are things that must be done now. Israel should be inviting, not prohibiting, Palestinian entrepreneurs to come to the West Bank and invest. It should be greatly expanding the number of permits for businesspeople to come to Jerusalem. It should be allowing banks to operate here, thus stopping the city’s brain drain to Amman and Dubai. It should be assigning security forces to work with PA forces to expedite Palestinian supply chains. It should be authorizing the development of a secure, north-south transportation corridor linking Palestinian cities, perhaps picking up on the Rand Corporation’s brilliant idea of an "arc" of bus and rail lines. It should be releasing more bandwidth for Palestinian telecom, and restricting Israeli competition in Area C.

Netanyahu could do all of this today without endangering Israelis or even removing settlers yet. With so many Palestinians under 20, the economic disparities so great, and the territory so small, what can be more dangerous than continued stagnation?

Bernard Avishai, adjunct professor of business at Hebrew University, is the author of The Hebrew Republic: How Secular Democracy and Global Enterprise Will Bring Israel Peace At Last. He blogs at www.bernardavishai.com.