Category Archives: Israel

Israel and Palestine: The Economic Solution

Disclaimer and background: I’m Farah Halime, the creator of Rebel Economy and a Palestinian.  I’m originally from Haifa, a port city that is now part of Israel. My parents were born in a United Nations refugee camp in Shatila, Beirut and moved to Cyprus where they were granted political asylum.  That’s where I was born.  We were lucky enough to get British citizenship in 2004 and I still use the first passport I’ve ever had (I don’t have to renew it for two years).

I have many relatives still living in Shatila where it is hard to find work, and clean running water and electricity are scarce.

I am biased, hence the disclaimer.

[caption id="attachment_571" align="aligncenter" width="480"] Palestine, before Israel existed, in a Baedeker (an old travel book) printed in 1912[/caption]

Israel and Palestine: The Two-State Problem 

Israel is “a first-tier innovation hub, second in the world only to Silicon Valley in its concentration of start-up companies,” write the directors of McKinsey’s Tel Aviv office in the Financial Times.

US companies and investment funds make the vast majority of all investments in the Israeli market, according to the article.   But in an effort to diversify investments and encourage interest from Europe and Asia, the McKinsey team put together a list of Israeli sectors that are “rich with promise”.

The writers point out how Israel is an innovation centre with the private sector spending more on innovation as a percentage of GDP than that of any other nation.  Some popular technologies were invented in Israel, including the first Internet messaging service.

There is much more to Israel than technical know-how. It is a small, highly networked country with a high concentration of educated workers. Interdisciplinary skills are common, and most workers are multilingual.

While the country has attracted a few European and Asian firms including SAP and Samsung, the vast majority of investments and M&A bids are made by US companies – this despite the fact that TelAviv is much closer to London than it is to New York. 

The article goes on to discuss how the lack of fresh water in Israel spurred innovation in the areas of water treatment and agriculture.  Israel now leads the world in the development of desalination technology.


The country has even been dubbed the “Start-Up Nation” for having more scientists, engineers, and start-ups per capita, than any other nation in the world.  

But what this FT article pointedly ignores in its bid to attract investment to Israel is Palestine and its people.

Last month, US Republican presidential candidate Mitt Romney, who has been outspoken for his Israeli support, told Jewish donors that their culture is part of what has allowed them to be more economically successful than the Palestinians, angering Palestinians and Arabs who suggested his comments were “racist and out of touch with the realities of the Middle East,” writes Daniel W. Drezner in the Foreign Policy article linked above.

Yes, the Palestinian Authority’s economic platform prompted a backlash from Palestinians who are fed up with rising petrol prices, and an economic regime imposed by the Israeli occupation that is faithfully implemented by the PA.

But it is also true that the West Bank’s economy has been heavily eroded because of relentless Israeli closure policies that slow down trade and labour flows, industrial capacity, and economic productivity.

As Ghanem Nuseibeh, a fellow Palestinian and founder of consultancy Cornerstone Global Associates, writes in this widely circulated article, “Palestine can become Israel’s main corridor to the Arab world. The key to Israel’s regional emancipation, therefore, lies in cooperating with the Palestinians, not bypassing them.

If additional Palestinian exports reach $2 billion annually, this would be equivalent to almost half the current Palestinian GDP, reviving the Palestinian economy and leading to a natural reduction of the public sector burden.

“But to achieve this, Palestine’s economy must be liberated.”

Israel will never be internationally successful without Palestine.

Palestine has no choice but to wait and hope that Israel’s government lifts the unofficial sanctions it has placed on the country.

Breakfast Wrap: Egypt’s Skewed Budget, Israel-Palestine, Morsi Policy Plan?

The big Egypt number that came out yesterday was the balance of payments deficit, which widened to $11.3 billion in 2012/2011, from $9.8 billion a year earlier as two of the country’s biggest currency earners, tourists and foreign investors, fled amid last year’s uprising.

This Central Bank announcement is important because it provides some indication of Egypt’s balance sheet – how much is going in and how much goes out.  Obviously if not enough money is coming in to cover expenses, a deficit will occur.  That’s why emphasis is being put on exports, tourism and foreign investment with big breakfasts that bring in huge US companies.   That’s also why Egypt needs an IMF loan.

Another important currency earner is the Suez Canal, and latest revenues for the canal rose 3% to $446.6 million in August compared to the previous month, Reuters reported.

While Israeli political powers dithered over the state budget for 2013, Palestinians are protesting the dire economic situation.

Tens of thousands of Palestinians in the West Bank yesterday held one-day long strikes as part of weeklong protests, over the deepening economic crisis, the Wall Street Journal reports (which actually sponsored the Israeli investment conference that the above Israeli budget story was written about).

The unrest is actually triggered by increases in gas-prices and budget constraints for the Palestinian Authority – matters countries such as Egypt are all too familiar with.

Iran is in talks to sell oil to Egypt: Setting aside the frosty political relations between the two, this may indicate something more financially significant. Egypt is expanding its band of oil-exporters to fill its shortage.  Obviously there are issues with Tehran because of EU-imposed sanctions for exporting oil, but it could be a problem solved for Egypt which is desperate for energy resources to keep up its inefficient energy subsidy system and power plants.

Twenty more “Niles” needed to feed growing population – Of course the irony here is that despite Egypt having it’s very own Nile, the country’s population still doesn’t get access to equal amounts of water.

Hisham Fahmy, who heads the American Chamber of Commerce, spoke to the Financial Times about the emergence of the Brotherhood and how they compare to the former regime:

Mr Fahmy says AmCham members considered Mr Mubarak’s economic policy to be “on the right track, though it lacked the social element and social safety net and the idea of trickle down just did not happen”.

What is clear from the high profile US delegation visit this week is the absence of the Brotherhood.  Ministers under prime minister Hisham Qandil may have been present at the meeting on Sunday but the dialogue was mainly focused on big business and the US benefiting.

It begs the question: what is president Mohammed Morsi’s policy plan? Roula Khalaf, the FT’s Middle East editor wrote a succinct critique of Mr Morsi and the challenges he has ahead.

Interesting insight from the Council of Foreign Relations’ blog into Egypt’s colonial roots and how that’s had an impact on how society views the International Monetary Fund Loan. It gives a potted history of how history shows Egypt selling off its core assets, including parts of the Suez Canal.

By 1875 Egypt was so debt-ridden that the Khedive sold all of the country’s shares in the canal to the British Crown. The canal was a triumph of French engineering and financing, but it was also an Egyptian national asset that slipped away from the country to service debt to foreigners.

(Big) Breakfast Wrap: BP/Petronas $1BN in Egypt, Wheat Panic-Buy, Devalue or Not?

BP and Malaysia’s Petronas will invest $1 billion to drill 9 wells for natural gas in Egypt, expected to produce up to 1600 cubic feet of gas daily, reports Al Ahram this morning (Arabic).   Egypt needs to up the ante on exploration at home considering the country’s natural gas shortage, and the consequences of this (i.e., chronic electricity cuts because most power stations are run using natural gas).

Egypt’s state wheat buyer, the General Authority for Supply Commodities (GASC), on Friday set its fourth international wheat tender in three weeks, seeking an unspecified volume for October 11-20 shipment.  Egypt is the biggest net importer of wheat – making drought concerns in Russia a big concern.  Looks like GASC is stockpiling while it can.

Egypt’s first sale of Euro-denominated bonds did better than expected, exceeding the goal set.  This is Egypt’s attempt to diversify its currency reserves and get some different hard cash into its coffers.  It’s already had a go at selling dollar-denominated bonds.

Standard & Poors rating agency says a currency devaluation in Egypt is “likely” if foreign reserve levels don’t increase.

We believe that a managed devaluation could provide some respite for Egypt’s external financing needs. However, in order to smooth the transition to a more flexible exchange rate, tighter fiscal and monetary policies will likely be required.

That’s a few days after President Morsi ruled out a devaluation.  But increasingly, indications are pointing to confusion within the Muslim Brotherhood, where behind the scenes advisors and economic teams have different point of views over whether there should be a devaluation or not.

EFG Hermes to hold second shareholder meeting September 16 to review the proposed creation of an investment bank with Qatar’s QInvest, after the deal failed to get regulatory approval in Egypt.

Ampal-American Israel Corp filed for Chapter 11 bankruptcy protection as it faces deepening financial troubles in the wake of a halt to natural gas supplies to Israel from Egypt.   But despite the current worries over natural gas in Israel, new discoveries and vast wells point to no problem with Israel’s energy needs, as the FT’s Tobias Buck explains in this great report, “Field of Dreams”.

Qatar’s Rasgas has found a virus in its office computer network, the world’s second-biggest liquefied natural gas exporter said, just two weeks after the world’s biggest oil producer in neighbouring Saudi Arabia was hacked into.   It begs the question (again), how do these behemoth companies get away with such poor infrastructure?

Glencore’s attempt to form the world’s fourth-largest mining conglomerate by acquiring Xstrata edged closer to collapse after sovereign wealth fund Qatar Holding said it would vote against a deal at the current offer price.

South Sudan could take 6 months to resume oil output.  That’s not a surprise considering landlocked South Sudan, which seceded from Sudan last year, shut down its production of roughly 350,000 barrels per day in January and tensions are still running high.

Libya’s biggest oil refinery restarts after war closure.

Gaza Tunnels On Life Support

Guest post by Jared Malsin, journalist and former chief English editor for the Palestinian Ma’an News Agency

[caption id="attachment_372" align="aligncenter" width="614"] Underground tunnels at Rafah where goods are smuggled from Egypt into Gaza. Photo taken in 2009 © Marius Arnesen/Flickr. IRIN[/caption]

The Gaza Strip’s largest commercial portal with the outside world is a vast tunnel network.  Before the deadly armed attacks on the Egyptian border, about $500 million and $700 million in goods passed through the tunnels every year.

But all this may be forced to change.

Hamas is pressing Egypt to use the Gaza Strip’s Rafah border crossing for commercial trade and potentially designate Gaza a free trade zone, according to an important report from IRIN, the UN humanitarian news service.

The fact that this possibility is under discussion is significant.  Namely, because such a move could allow Israel to functionally end its responsibility for Gaza and further separate the Strip from its natural ties to the West Bank and Palestine/Israel at large.

Hamas’ proposal to transform the Rafah crossing into a commercial terminal could mean that the group believes Egypt is more serious this time around about closing down tunnels. At the least, this overture is a sign that Hamas believes the dangerous and physically unstable tunnel system is not a long-term solution to the economic collapse caused by the Israeli blockade of Gaza.

But the announcement comes at a sensitive time.  Earlier this month, Egyptian authorities moved to shut down much of the vast network of underground tunnels following an armed attack on an Egyptian border post that left 16 soldiers dead.

In the past, Egypt has used a variety of means to close down the smuggling tunnels, including a Bond-villain-esque attempt to build an underground metal wall. The smugglers were ultimately able to circumvent all of these attempts, including the wall (one smuggler told me during a 2010 visit that they were able to drill through the wall in a matter of hours).

This ambitious project would require a lot of work.

The Rafah border crossing is a passenger terminal and currently lacks the infrastructure to handle the passage of commercial goods, so any potential trade at the crossing would require a significant augmentation to the crossing.

Any future formalization of the border is unlikely to happen any time soon, as IRIN notes:

Calls for improved trade relations with Egypt have sparked fears that Israel would use the opportunity to rid itself of all responsibility for Gaza: Once Rafah is opened to commercial goods, Israel could argue it no longer has to keep open the Kerem Shalom crossing – the only official entry point for imported goods. “That would be the end of Israeli responsibility for Gaza,” said Thrall.

Such a move could undermine efforts to reach Palestinian unity by further disconnecting Gaza from the West Bank. For this reason, even Hamas is careful not to push too hard for imports into Gaza.

What’s happening at Kerem Shalom? “We don’t want to see Israel closing Kerem Shalom,” Hamad said. “Israel just wants to push us towards Egypt. But we do consider Gaza as part of the Palestinian homeland.”

“It’s a serious discussion,” added Shawwa, the former PA minister. “Do we want an independent economy of Gaza? That might take us into a new era of Palestinian separation.”

The ongoing focus on the future of the Rafah border is a result of diminishing expectations that Israel will ever reopen its border crossings with Gaza.

Beginning with the Israeli occupation of Gaza in 1967, Gaza residents enjoyed relatively free trade and movement within Israel and the West Bank. This changed in 1991 when Israel cancelled the general exit permit for Gaza residents, and matters became drastically worse with the imposition of closure in 2006 and 2007, following Hamas’ rise to power.

As Sari Bashi, the director of Tel Aviv-based advocacy group Gisha, told me in an interview last year: “Israel bombed the airport in Gaza and bombed the site where they were building a seaport,” Bashi said, “so those restrictions have made Rafah crossing into the gateway to the world for folks living in Gaza, but it doesn’t absolve Israel of the responsibility to respect the rights of people in Gaza to freedom of movement.”

The real question however lies with Egypt.

Under this potential scenario, with Israel all but absolving responsibility for the crossing, Egypt would have its hands full managing the border. For now the Egyptian authorities are giving little indication of whether they would accept such an arrangement.

Egypt’s dilemma is summed up nicely by Abdel Monem Said, director of the Al-Ahram Center for Political and Strategic Studies in Cairo, quoted in IRIN: “[Egyptian President Mohamed] Morsi knows he can’t really allow Palestinians in Gaza to starve. And there is pressure from inside the [Muslim] Brotherhood to support Hamas.”

On the other hand, he says, Egypt is constrained by close security cooperation with Israel in Sinai.

This will prove to be one of Mohammed Morsi’s most contentious challenges as president.

Guest Post: Egypt’s own Industrial Revolution

Guest post from Ghanem Nuseibeh, Founder of Cornerstone Global Associates and Senior Visiting Fellow at King’s College London

The regime change in Egypt, as historical as it may be, will be easily dwarfed in its impact by an economic miracle on the scale of Britain’s Industrial Revolution.

Regardless of the causes of the Egypt’s regime change, the most positive effect it had is the removal of a complex, quasi-governmental system of exceptional corruption that stifled the chances of economic development.

That has gone, for good.

What remains within Egyptian society are factors that are often seen as challenges and risks, but  with the right policies and catalysts, can have a transformative impact on Egypt and the whole of the Arab region.

Those include the military’s grip on large chunks of the country’s economy, a high demographic growth rate and an unemployed youth bulge. Those are precisely the ingredients that Israel needed to create its so-called “Start-Up Nation” economic miracle in the early 1990’s.

Egypt may even have more favourable conditions than Israel’s: it has regional market access and regional capital.

The plan: A $2 billion fund that gives grants to scientists and engineers to develop products, perhaps under the umbrella of the military, can not only lead to creating hundreds of thousands of jobs, but give Egypt years and years of economic growth. Such an initiative would need Gulf financial commitment, who should see this as an investment that will generate wealth, rather than a cost.

Achieving this will not be easy, but will create an economic miracle that has the potential to be as big as the Industrial Revolution.

The government, the military as well as Gulf backers all have a role to play in ensuring that a Gulf-backed mega venture capital-like fund run under the auspices of the Egyptian military becomes the nucleus of the Arab Economic Spring.