Dear Dubai,
On behalf of many, I would like to say shukran iktir (thanks a lot). Thanks to your longstanding adherence to the Arab boycott, dozens of Israeli investors and entrepreneurs got their Chanukah present a couple of weeks early this year. Admittedly, this was an unconventional gift from an entirely unexpected source, but Israelis were completely spared the carnage precipitated by the Dubai debacle disclosed last week.
Rest assured that, given the chance, Israelis would have aggressively pursued investment opportunities in the region. Isolated for years, they have become among the most globally active entrepreneurs, seeking practically any market that will agree to work with them. Historically, that meant traveling great distances. When a Frenchman wants to export something locally, he can get in his car and drive to any of eight countries: Belgium, Luxembourg, Germany, Switzerland, Italy, Monaco, Andorra or Spain. An Argentinian can drive to five: Chile, Bolivia, Paraguay, Brazil or Uruguay. There is only one place an export-oriented Israeli businessman can drive to: Ben Gurion Airport. Due to the Arab boycott, regional trade has never been an option and Israel’s closest geographic neighbors may just as well have been on Mars.
No peace payoff
Your application of the Arab boycott is neither original nor unique. Arab boycotts of Jewish interests started as early as 1922. A formal boycott was declared by the newly formed Arab League Council on December 2, 1945, two and half years before the creation of the modern State of Israel. It applied to "all Jewish and Zionist products." The boycott evolved after 1948, and intensified following the Yom Kippur war in 1973. Essentially, it has three components: (1) the primary boycott, which prohibits direct trade between Israel and the Arab nations; (2) the secondary boycott, directed against companies that do business with Israel; and (3) the tertiary boycott that blacklists firms that trade with other companies that do business with Israel. The latter two components have been somewhat relaxed since the Oslo accords in 1993 and the peace treaty with Jordan in 1994. That year also marked the launch of the World Economic Forum’s Middle East North Africa business summits, in which many of your countrymen participated.
Patterned after the famous annual gatherings held in Davos, these were the first formal engagements between Israeli and Arab business leaders. As expected, Israeli participants, including Prime Minister Yitzhak Rabin and Foreign Minister Shimon Peres, were tripping all over each other to meet potential Arab business partners who, for the most part, seemed overwhelmed and uncomfortable. Very few deals were consummated, and those that were received harsh condemnation in the Arab world for being premature.
The next year, in Amman, Israelis showed up with a list of 218 proposed projects worth $25 billion. As can be imagined, almost all were ignored. Moreover, the $5 billion regional bank that was agreed was never established. The Egyptians hosted the following year, and the last of these conferences was held in Doha, Qatar in 1997.
As a participant, I can attest that a lot of pressure was applied, directly and indirectly, by the Americans as well as EU countries, to end the Arab boycott entirely. These efforts failed. However, the summits did provide an opportunity to meet, learn from, and develop relationships with potential partners who, hopefully, would be more forthcoming in a more private forum.
Politics prevails
In the 1990s, I was working for Koor Industries. It was Israel’s largest conglomerate with over 50 subsidiaries, employing 35,000 people and representing 7% of the country's industrialized economy. Following each of the three World Economic Forum conferences I attended, I traveled throughout the region (with a Canadian passport) to see whether Koor’s extensive menu could provide a platform for joint venture activities with Arab interlocutors, especially within the Persian Gulf. I visited each of the six GCC (Gulf Cooperation Council) countries (Saudi Arabia, Kuwait, Bahrain, Qatar, UAE and Oman) at least once and was in your city, Dubai, four times. Everyone I met was courteous and curious. But, at the end of the day, the political obstacles were insurmountable.
It is worth recalling that in 1997, oil was trading at about $10-12 a barrel, and these countries were under enormous pressure to accelerate economic diversification. Perhaps because you in Dubai had already almost run out of oil, you were substantially ahead of your neighbors in almost every other industry. Major real estate construction projects punctuated the expanding skyline and the unquenchable thirst for record-breaking trophies was visible all over the city. You developed a thriving diamond industry, a financial center, and a burgeoning tourism and entertainment complex that was a playground for the wealthy within the region and beyond. Flying to and from Riyadh through Dubai was an incredible study in contrasts. In Dubai, women wore western clothes, worked in offices and drove cars. The mega-wealthy would fly in and out just to purchase luxury goods from the largest duty-free zone in the world.
Over the next ten years, as oil soared towards a peak price of $147 per barrel, the Arab elite became increasingly wealthier and your town became their favorite place to show off their wealth. Major neighborhoods were built on man-made islands offshore, contractors were outdoing each other to construct the next Tower of Babel and a city that never came within 20 degrees of a snowy day now offers visitors year-round skiing - indoors! Nothing was too expensive because the petrodollar flow was destined to last forever. One or two Israeli real estate tycoons who have partnered with Saudi businessman on other projects are rumored to be “silent partners” in some Dubai projects as well. Yet you generally adhered to the Arab boycott and remain extremely reluctant to embrace meaningful partnerships with Israeli companies.
There is an old joke about the Jew who prefers to read Arab newspapers because instead of reading about Jews being persecuted, Israel being attacked, Jews disappearing through assimilation, and Jews living in poverty, he can now read how Jews own all the banks, Jews control the media, Jews are all rich and powerful, and Jews rule the world. One world Jews don’t own any part of is Dubai World, the sovereign wealth fund that is now teetering on the brink of insolvency, struggling to restructure nearly $60 billion in debt. This has already had significant repercussions for numerous entities within the region and many countries around the world. Except Israel. So as we approach Chanukah, let me say once again, shukran Iktir. And a'id sa’id (happy holiday).
Lyon (Lenny) Roth is a senior executive at an international wealth management firm and a member of Ben Gurion University's Board of Governors.
Published by Globes [online], Israel business news - www.globes-online.com - on December 7, 2009
© Copyright of Globes Publisher Itonut (1983) Ltd. 2009