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Arab-Israeli Peace Could Unlock Enormous Trade Potential
The Washington Diplomat / August 2000

By Larry Luxner

TEL AVIV -- Ten years ago, the very mention of Israel in most of the Arab world could spark a riot. Today, three Arab countries -- Egypt, Jordan and Mauritania -- maintain full diplomatic relations with the Jewish state, and another two -- Qatar and Oman -- host Israeli trade offices in their respective capitals, Doha and Muscat.

That's not to say Arab businessmen are beating a path to Tel Aviv, or that kiosks selling Hebrew National hot dogs or will soon line the streets of Damascus. But attitudes are gradually changing, and contacts between Israel and her Arab neighbors are increasing every day. Consider the following:

* Dozens of factories owned by Israeli companies operate just over the border in Jordan, making everything from batteries to bikinis, while various Tel Aviv-based computer firms employ Jordanian software programmers in joint ventures profitable for both sides.

* A number of Israeli-Palestinian ventures are also operating in the eses Bank, and the $10 million West Bank, and at the $10 million, Palestinian-owned Telephérique & Sultan Tourist Center, signs in Hebrew guide Israeli tourists to shops and restaurants on the Mount of Temptations overlooking Jericho.

* Several non-Arab Islamic states such as Indonesia have also begun warming up to Israel. In 1999, for example, Israeli exports to Malaysia totaled $105.3 million -- up from $75 million the year before. Imports from Malaysia, meanwhile, amounted to $23.5 million, up from $5.7 million in 1998. Recently, an Indonesian insurance company announced it was setting up a branch office in Tel Aviv, as part of a joint venture with Israeli partners.

* Israeli tourists routinely visit Morocco and Tunisia, and have even begun trickling into Yemen, now that the once-forbidden country has made it clear that it welcomes Israeli Jews of Yemenite origin.

According to a new report issued by the Israel Export Institute (IEI) in Tel Aviv, total trade between Israel and her Arab neighbors totaled $100 million last year, even in the absence of a comprehensive Arab-Israeli peace settlement. If true peace were to arrive, says the report, the economic benefits for everyone would be enormous.

The 28-page study, entitled "Potential for Trade Relations Between Israel and the Arab Countries," outlines specific opportunities for Israeli exports and services in 11 Arab markets ranging from Bahrain to Syria to Morocco.

Despite chilly relations between Israel and Egypt, the two countries do have a peace treaty, and about 20 Israeli firms currently operate in Egypt. Together, they have invested $30 million or so in joint ventures, mainly in the spheres of textiles, agricultural equipment, medical devices, plastics and air-conditioners. In 1998, the last year for which statistics are available, Israeli exports to Egypt dropped 3.7% to $55 million, while Egyptian exports to Israel (excluding petroleum) fell by 40% to $18 million.

In the case of Jordan, relations are considerably warmer. The country's new leader, King Abdullah, recently paid his first official visit to Israel. In 1998, bilateral trade came to $40 million, with Israeli exports including fertilizers, chemicals and mechanical devices. Jordanian exports to Israel consisted of sand, cement and industrial air-conditioners.

At least 10 Israeli companies operate in the Al-Hassan Qualified Industrial Zone (QIZ), including Delta Galil, Canniel, Tadiran Batteries, Keter Plastics and Paz Chen Jewelry. Bagir, another Israeli company, has started a project in the Zarqa area. The goods produced by these companies are meant primarily for foreign markets, mainly the United States.

The report puts the potential for Israeli exports to Jordan at between $60 million and $200 million annually, led by products such as irrigation systems, fresh fruits and vegetables, telecom equipment and synthetic raw materials for the textile industry.

"Israeli exporters can use Jordan as a platform for exports to the Persian Gulf countries," says the report, estimating the future export potential from Israel to the Gulf states via Jordan at around $150 million a year. "At the same time, it will be difficult to realize this potential in light of the Gulf states' established trade ties with suppliers from Western countries and the psychological difficulty in purchasing Israeli products."

Mendi Zaltzman, director of external relations at the Israel Ports and Railways Authority, said increased trade between Israel and Jordan is already making the Israeli port of Eilat obsolete.

"As we understand, the Jordanian port of Aqaba will be the major port on the Red Sea. Because our need for port workers in Eilat has decreased significantly, we are going to dismiss 30% of the workforce there [from the current 170 to around 120]. The vessels they get there act as feeders from Eilat to Aqaba. Since the peace between Israel and Jordan is going to become warmer, we don't see any specific benefit or advantage in keeping Eilat at its current level."

The third Arab country to formally recognize Israel -- Mauritania -- wants Israeli expertise in agriculture and medicine. But the North African state will never likely be a major trading partner for the Jewish state, partly because it is so far away, and partly because of its small, impoverished population. Over half of Mauritania's 2.6 million people live below the poverty line.

Trade with Morocco is more impressive, with commerce reaching a peak of $20 million in 1995. Israelis are involved in setting up and operating farms in Morocco; several representatives of Israeli irrigation firms live there permanently.

Even more promising are the oil-rich sheikhdoms of the Persian Gulf.

In 1998, said the IEI report, Israel exported $454,000 worth of goods to Oman, and $133,000 in goods to Qatar (down from $2 million in Israeli exports to Qatar in 1997).

"Qatar imports a considerable portion of its food and agricultural produce needs, and in this sphere, Israeli companies could enjoy an advantage, specifically in semi-processed products," said the report.

None of this is being ignored by the Israel Ports and Railways Authority, which foresees the day when Israel will become a maritime and overland transit point for cargoes moving throughout the Middle East.

"Overland cargo traffic is expected to develop, mainly from Israel's ports to Jordan and Palestine," said the authority in a recent statement. "On the other hand, Syrian, Lebanese and Egyptian ports will compete with Israeli ports for Israeli cargoes. Other Mediterranean ports will also compete with Israel's ports for transshipment traffic. On the whole, cargo traffic through Israel, however, should increase in light of the above factors."

The authority adds that "cargo will be transported from Israel to its regional neighbors, in the first stage, via tractor-trailer trucks and coastal feeder or Ro-Ro lines operating on a high-frequency schedule in the eastern Mediterranean basin. Railway and road development, in the second stage, will encourage further growth of transit traffic."

This growth will likely consist of Israeli exports to Arab countries such as Bahrain, Kuwait and Saudi Arabia -- countries that at present refuse to trade openly with Israel.

According to the IEI study, Israeli exports to Kuwait in 1998 came to only $86,521 -- mainly measuring devices, machinery and mechanical instruments. While that doesn't seem like much, it's four times the amount of trade in 1997.

But the biggest prize for Israel in the Middle East is Saudi Arabia, with 20 million people and a Gross Domestic Product of nearly $250 billion.

"The main potential for Israeli companies in Saudi Arabia lies in the transfer of know-how and advanced technologies -- particularly in branches in which Israel has a reputation, such as software, telecommunications, engineering, medicine, agriculture and food," said the report. "Saudi companies, public and private, are very interested in R&D and in acquiring know-how, though Saudi entrepreneurs are limited in their ability to finance this activity. Cooperative ventures between Israeli and Saudi bodies (business and research) could be attractive, if they do not involve direct Saudi funding. For Israeli companies, this could be the best way of entry in current market conditions."

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