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French Version

Israeli economics integrally dependent on Jordanian relations

Israel is facing mounting economic imbalances since the eruption of the 19-month-old Palestinian Intifada.

JORDAN (Star) - Israel is facing mounting economic imbalances since the eruption of the 19-month-old Palestinian Intifada. Political and economic analysts are in agreement that Prime Minister Ariel Sharon's reckless and seemingly endless assaults on the Palestinian people are slowly but surely ruining the Israeli economy.
Israel, a country where 75 percent of its GDP is supported by foreign financial aid from the US and Europe, has never experienced such a tumultuous economic circumstance since the establishment of the Jewish state 54 years ago.

Israel's losses incurred during the Palestinian Intifada are now nearing the $15 billion mark, some 65 percent of the projected $24 billion GDP for 2002.

But Israelis are no longer blaming Palestinians for their plight. A marked shift in opinion puts the blame decisively on Mr Sharon. As the prime minister continues sending tanks and soldiers into more Palestinian areas his own people are feeling the repercussions.

"Sharon's government has no interest in economics," explained Dr Mohammed Saqer, professor of economics at the University of Jordan. "The Israeli leadership continues to ignore the reality: Its economy is going down the toilet."

Statistics recently released reveal tremendous negative economic growth in Israel. Public polls are exposing increasing opposition amongst Israeli citizens to Sharon's military incursions in the West Bank and Gaza that are costing Israel $2.5 million per day.

Saqer suggests the Israeli government has continued to increase military spending on its elusive goal of "security" at the expense of other vital economic sectors. "There are more than 200 Jewish settlements in the West Bank and Gaza. Each of these settlements costs Israel more than $5 million a month for their security," Saqer explained. "We are talking here about billions of dollars spent on useless facilities."

Israel's currency, the shekel, is losing ground in world markets. Thus far the currency has lost 11 percent of its value against the US dollar in April alone. Currently a US dollar equals five Israeli shekels.

These depressing economic realities are forcing Israeli investors and businessmen to set their sights beyond their borders toward the better business conditions in neighboring nations in the Middle East. Besides Turkey-where Israeli investments earn billions of dollars each year-the Israelis have a great interest in Jordan.

More lenient trade regulations, at times specifically advantageous trade relations, cheap labor, and generally lower overall business costs are primary motivators for Israeli businessmen to set up shop in the Arab world. One such motivator was the 1996 agreement to establish Qualified Industrial Zones or QIZs in Jordan. Local economists view the agreement as a benchmark for the Jordanian economy with Jordan, the US and Israel all party to the arrangements.

Although Israel enjoys no diplomatic relations with other Arab countries, Israeli sources indicate the trade volume between Israel and the Arab world increased last year to more than $180 million. It is expected to increase an additional 5 percent in 2002.

"Economic relations between the Arab world and Israel has lessened recently as a result of the Palestinian Intifada. But some Arab countries continue to keep the door open for Israeli businessmen," said Saqer.

Economists explain favorable trade laws and a generally productive business environment in the QIZs make the Middle East a viable sourcing alternative to the Far East, Mexico and other regions. Israel's trade laws, business regulations and high labor costs result in significant reductions in final profit when compared to similar endeavors in the Arab world's QIZs.

In Jordan cheap labor is only one incentive for Israeli investment. Competitive rates for rent, low electricity, and generally lower operating expenses combined with the income tax exemptions offered by Jordanian QIZs make investing in Jordan very attractive.

A significant number of Jordanian businessmen are involved in joint ventures with Israeli counterparts despite the tense political climate such endeavors now operate in. The annual trade volume between the two countries has grown steadily to some $77 million. Economists believe the launching of the US-Jordan Free Trade Agreement late last year will result in continued expansion of Israeli-Jordanian economic relations for some time.

QIZs were a unilateral action by the US designed to encourage Jordanian exports to US market without the additional burden of tariffs. The duty-free and quota-free exports from QIZs have enticed both foreign and domestic manufacturers to the zones.

Jordanian exports from QIZs are qualified by their content. Each product must represent a minimum 35 percent of the appraised value, with 11.7 percent of content originating in Jordan and eight percent originating from Israel. The requirement on the percentage of Israeli content is valid for a five-year period, beginning in February 1999.

Saqer believes recent Arab street protests are sending a clear message: "The Israelis know full well they are no longer welcome in the region due to their government's atrocities. If a change isn't seen in Israeli policies with regard to the Occupied Territories and Palestinian statehood it most assuredly will be seen in Arab ones."


Amman,04May2002
Ghassan Joha
The Star


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