Business meetings between Israeli and Palestinian companies are a matter of routine, since, after all, the Palestinian Authority is Israel's second largest export target after the United States. Business co-operation in the software and high tech fields, however, which carry ever-greater weight in Israeli industry, is extremely limited.
The second in a series of meetings between Israeli and Palestinian high tech and software companies, conducted this month in Ramallah by the Jewish-Arab economic development centre, focused on introducing prominent individuals from either side to one another. Future meetings are expected to focus on specific sectors, similar to developments in meetings held for textiles and the traditional industries. The aim of these discussions is to promote and pair off Israeli and Palestinian companies, which may then proceed to form business ties.
According to the Palestinian software companies association, the Palestinian sector has a few dozen companies employing about 1,500 professional and technical employees.
In recent years, the total turnover of the software sector in the Territories ranged from $100-150 million annually. The Palestinian software association, currently in the formation stage, is resorting to the assistance of the Israeli software association, among others. Soon it will finish preparing a database on its 41 member companies, which will then appear on the association's Internet site www.pita"palestine.org, to smooth the way for anyone wishing to contact Palestinian companies.
According to Bassem el-Wazir, secretary of the Palestinian software companies association, the association's targets for the next few years include consolidating and developing human capital, and consolidating ties with international and Israeli software and high-tech companies in order to develop an off-shore applications. As examples of such projects that have gone into effect, he cited the ties with Siemens, which opened a branch in Ramallah following an advanced training course it held at the Siemens branch in Carmiel. Also, the Israeli branch of Oracle has trained Palestinian software personnel, who are currently engaged in development and in adapting systems for the use of Palestinian customers.
In general, El-Wazir notes, the Palestinians wish to be partners and not just constitute a bridge to the Arab world for the Israeli software sector.
Saeb Bamiya, director-general of the Palestinian ministry of economic and commercial affairs, also emphasised the subject of partnership. In an interview with "Globes", Bamiya commented on the Palestinian Authority's activity for promoting the private sector in general and IT activity in particular. According to Bamiya, ties between Palestinian and Israeli companies should be based on partnership between the private sectors, as opposed to exploitation. He said the Palestinian Authority was pinning its hopes on the development of the software sector in the Palestinian Authority Territories, both because of geographical proximity and economic ties with the Israeli economy, and because of Palestinian manpower, which is one of the most highly educated in the Middle East. The Palestinian Authority realises, however, that people lack the practical knowhow for immediate activity and that an advanced training programme is required for converting science graduates to the computer and software fields.
According to Bamiya, the Palestinian Authority ascribes top priority to laying the legal infrastructure in commercial and financial law and investment law. He said legislation would be completed before mid-2000, with the aim of creating, as soon as possible, conditions in which the private sector can pursue its activity within the Palestinian Authority's jurisdiction. The new laws, replacing old Jordanian and Egyptian ones, are being formulated in such a way as to meet WTO criteria.
Bamiya adds that the strategy for developing the software and high-tech sector is currently being formulated in collaboration with the World Bank, and that the report is due to be published in a few months time.
"Globes" asked whether, if he were an Israeli investor, Bamiya would be prepared to set up a company in the Palestinian Authority, given Palestinian restrictions, including the restriction stipulating that 51% of the company must be Palestinian owned. Bamiya replied that he believed Israeli investors to be smart enough to choose suitable Palestinian partners. The law, he explained, was designed to endow the Palestinian economy with stability and prevent the flight of investment. On the other hand, he noted that an Israeli investor wanting full ownership or control of a company operating within the Palestinian Authority could operate in industrial areas, and especially in the industrial zone designated for high-tech in Khadouri, near Kalkiliya, and near Israeli high-tech industrial areas.
Amiram Shor, chairman of Israel's software houses association and general manager of MLL, is less optimistic as to the chances of success of the Khadouri industrial zone. He estimates that a number of companies may relocate their operations there. He does not, however, expect the place to be an important component in creating co-operation between Israeli and Palestinian companies in the field.
As regards the nature of potential co-operation, Shor estimates that even when suitable Palestinian workers or suitable Palestinian companies are found, Israeli companies will not include such workers in their core research and development activity. They would fear technological leakage and the emergence of competitors within the Palestinian Authority, who would not be subject to the game rules of the Israeli high tech and software market.
Shor accordingly maintains that Palestinian workers will not provide a response to the excess demand for high-tech and software employees, since the shortage is one of workers in the core activities of both long standing and start-up companies, namely the R&D of new technology.
In Shor's opinion, co-operation ought to be directed at expanding the fields of activities of Israeli companies. At the initial stage, the focus should be on outsourcing contracts, as in India and the Philippines. Options to be examined in this framework include co-operation focused on the adaptation of products to customers, including rendering Israeli products suitable for the tastes of Arab consumers, and then marketing them through Palestinian connections with the Arab world.
It seems that both Palestinian and Israeli decision makers in the public and private sectors agreed that Israeli-Palestinian co-operation may constitute a quality springboard for the development of the Palestinian software sector. But since the current volume of co-operation is limited, and even mutual acquaintanceship between the sectors is limited, it is doubtful whether, short of a special effort by both governments and non-governmental organisations, such as the Jewish-Arab economic development centre, the Palestinian software sector will grow into a real industry.
Published by Israel's Business Arena December 30, 1999