LONDON, 4 April — Imagine for a moment that the Saudi peace plan to resolve the Arab-Israeli conflict as proposed by Crown Prince Abdullah, which was unanimously endorsed by the extraordinary Arab League summit in Beirut last week, did become a reality. What then would the economic implications of peace between the Palestinians and the Israelis be for the region?
This scenario, as remote as it might seem today as Israeli tanks continue to pound Palestinian leader Yasser Arafat’s headquarters in Ramallah, should not be dismissed as the pipe dream of the peaceniks on both sides. For a start, the line between politics and economics in this world of growing globalization is getting increasingly blurred. There are also important political reasons why economics could eventually become the drivers of peace in the region.
Perhaps for the Sharon government, it also pays economically to go to war. Peace simply is not profitable enough, at least not yet. Israel gets billions of dollars as a stipend from the United States every year toward its budget. Successive American administrations have and will continue to arm Israel to the teeth, albeit for their own domestic political reasons. Without, the US aid, Israel’s economy would be in permanent ‘state of crisis’. It would effectively be a permanent ‘war economy’, which no country can sustain indefinitely.
Egypt’s reward for its peace treaty with Israel resulted in a similar stipend and some military hardware from the United States, but not to the same scale as with Israel. But, there are already signs that Cairo may be re-establishing its military links with Moscow, with a democratic Russia now reportedly supplying Egypt with its military communications technology.
But times are also changing in the United States. Even before 9/11, some American politicians, albeit in a minority, were starting to ask the awkward question — why were so many billions of US tax dollars being spent to support Israel every year, when there was no return in terms of a movement to a peace settlement, and in fact when the settlements were continuing unabated?
Some of these groups are applying a cost-benefit element to US-Israeli policy. They do not compromise on the right of Israel to exist, but they do want to see a peace dividend. Post 9/11, the US role in its perceivedly blind support for Israel, has come home brutally to middle America. There may come a time, when a US administration or Congress, under due pressure from middle America, takes stock of its economic relationship with Israel, and starts demanding that hitherto elusive peace dividend.
Consider then the economic implications of a peace settlement. Gone will be the days that the Palestinian Authority (PA) would count the cost of losses during an Intifada. In the current one, official Palestinian losses are put at over $5 billion, which is wreaking havoc with any semblance of a budget. Gone will also be the days when Israel could with-hold taxes and duties due to the PA, as it has done during the Intifada to the tune of over $1 billion.
The US, Japan, the European Union, and the Gulf Cooperation Council states, would almost certainly launch a “Marshall Plan” for the reconstruction of Israel and Palestine, and resettlement of millions of refugees on both sides. The World Bank, IMF, European Bank for Reconstruction & Development, the Islamic Development Bank, and other international and regional funds would also contribute either through specific projects in specific sectors such as water and sewage, infrastructure, roads, health care and education, or toward co-financing with ECAs (export credit agencies) or with each other.
No-one has done a feasibility study as to the cost of Palestinian and Israeli reconstruction in the event of a peace settlement, but some estimates put this at between $100 billion-$200 billion plus. The only realistic way to economic cooperation and prosperity for all on the basis of primus inter pares would be through an economic and customs union, possibly initially between Israel, Palestine, and Jordan, and eventually including Lebanon and Syria. This would be largely necessitated by the demands of demography and various economic synergies.
It is perhaps in the area of agriculture where the myth of Israel’s so-called economic invincibility will be shattered. For years, Israeli farmers have captured the imagination for ‘greening the desert’ with their citrus orchards, vines and Mediterranean fruits and vegetables. But this success had a hidden cost, unfortunately at the expense of their Palestinian counterparts.
Palestinian farmers had access to water supplies, technology and marketing controlled, and land sometimes expropriated without even any compensation, subject to the political and security policies of whichever regime was in power. The fresh produce of Palestinian farmers often used to rot in warehouses because the export permits did not arrive in time or there were restrictions on movements because of security considerations. A few years ago, the European Union became so incensed with the then Israeli government’s obfuscation policy in stalling Palestinian agricultural export access to the European market, that it threatened sanctions against Israeli agricultural exports to the EU.
Peace would force a greater level-playing field in agriculture, and who knows may lead to alliances and synergies, which could benefit the ordinary consumer throughout the region.
In telecoms, industry, and tourism, there could be enormous synergies and economies of scale. In telecoms, for instance, Israel has a population of only 6.2 million, and yet it has the second largest number of Internet users in the Middle East and North Africa (MENA) region after Turkey, which has a population of 66 million.
In fact, the sector has a precedent in cross-border Palestinian-Israeli ‘cooperation’. During the early days of the Barak regime, the Technology Fund for Peace, which is headed by ex-Israeli prime minister and current foreign minister in the Sharon coalition, Shimon Peres, actually bought a 3.3 percent stake in the Palestinian Telecom Company (Pal Tel) for $9 million. At that time this was the single largest trade on the nascent Palestinian bourse.
In the financial sector, an UNCTAD report last year showed that the lack of a national currency has restricted the development of the Palestinian financial sector and capital market. The Palestinian currency is effectively the Jordanian dinar, which is also used by the Palestine Stock Exchange (PSE), which has shown tremendous resilience in keeping business going, even during the worst times of the Intifada and the Israeli actions. The benefits of peace would be enormous. Whether these benefits are actually realized, would depend on what price Palestinians and Israelis are prepared to pay for peace.
