This month’s Arab League summit ended with a relative whimper, without any operative or effective decision being taken to affect Israel’s status in the Arab world. It was the decisions by Morocco and Tunisia to cut their economic relations – some even termed them quasi-diplomatic – with Israel that might cause the greatest damage.
Morocco and Tunisia were the only countries to declare a cut-off of economic relations. Less sententiously, Oman also severed its relations with Israel. Egypt and Jordan, who maintain a cold peace, decided not to rip up the fabric of economic ties. Even Qatar hasn’t announced a severing of ties in the meantime, even though its policies are similar to Oman’s, and during the Netanyahu era they were quick to cut relations when they were displeased by policy trends.
The severing of economic relations with Morocco, Tunisia and Oman put the question of Israel’s economic relations with regional Islamic countries on the agenda, most of whom are defined as hostile. In financial terms, while maintaining the current level of trade will not boost or bust the economy, it will contribute added value to regional normalization.
If there is a positive element in the rioting within and without the borders of the State of Israel, it is the fact that once again we see that economic considerations trump political ones. The evidence is the tendency of Arab states not to announce the severing of their quiet economic relations with Israel, even as they do not maintain diplomatic relations. Granted, this may be because if they were to announce the severing of their economic relations, it would be an admission of having them in the first place.
Arab states trading with Israel fall into three categories. First is Egypt and Jordan, “our friends” who maintain peaceable relations mainly in the form of commercial ties and a smidgen of tourism. As might be expected, bilateral trade is highest with them.
The second category includes countries that maintain open economic relations that are not defined as diplomatic. These are countries trying to have their cake and eat it too, benefiting from Israel’s products while not defying Arab anti-Israel policy.
The third category consists of countries that maintain secret economic relations with Israel. These countries hide their heads in the sand, ignoring the fact that they buy Israeli goods and services. In most cases, goods were transferred through third countries, where the documentation and mode of transport is altered in transit, even though everyone at the destination knew that the goods were Israeli.
This category includes an astonishing list of countries that officially are members of the Arab boycott, and to whom we never to sell Israeli products in our wildest dreams: Saudi Arabia, Bahrain, Dubai, Kuwait and, it is whispered in boardrooms, Pakistan.
Several months ago, Israel Manufacturers Association Foreign Trade and International Relations Division director Moshe Nahum presented figures on Israeli exports to Arab states. It turns out that there are exports, it can be quantified and counted, and despite an as yet unimpressive financial scope, this trade enjoys phenomenal rates of growth. Israeli exports to the Gulf emirates for example, rose 133% in the first half of the year to $736,000.
Today, as we once again hear threats of the resumption of the Arab boycott, “Globes” surveys the range of Israeli economic relations with countries considered to be hostile, including potential and current trade, and what we might lose. The figures are based on economic surveys by the Export Institute.
Oman – good relations with the West
The Sultanate of Oman is a centralized monarchy, its 2.3 million people ruled by the Sultan. Its dominant economic sector, contributing 40% of GDP is oil. However, since its oil reserves are relatively small, Oman decided to develop other sectors, including natural gas and private industry. The latter currently constitutes only 5% of GDP, and the Omani government is seeking foreign investment to develop it.
Oman’s main export markets are in the Far East, especially Japan. Oman also takes care to develop good relations with the West, especially the US and Britain. A British company owns a significant part of the national oil and gas companies. Oman is expected to join the World Trade Organization (WTO) in 2001, making it a safer and more attractive trading partner.
- Relations with Israel: In the early 1990s, encouraged by Prime Minister Yitzhak Rabin, Oman developed economic relations with Israel, and mutual interest sections were opened. During the Netanyahu government, when progress in the regional peace process halted, the Omani government responded by recallng its representative in Tel Aviv. Oman again closed the Interest Section in Israel in response to the deterioration in the regional political and security situation.
- Potential for Israeli exports: Medical equipment (Oman’s health facilities need upgrading, especially hospital and clinical testing and diagnosis equipment); and irrigation equipment (the Omani government is financing irrigation projects throughout the country).
- Infrastructure: The Omani government has targeted tourism to contribute 5% to the GDP by 2020. The country therefore has to develop a road network, hotel and tourist infrastructure and desalination plants. The government has also designated telecommunications for improvement, especially for the benefit of villages in the center and west of the Sultanate. The government is interested in upgrading its electricity, local communications and broadcasting networks.
Qatar – agricultural cooperation?
Qatar possesses the third largest natural gas reserves in the world, and therefore has a rosy economic future predicted for it. On the other hand, Qatar’s oil reserves are rapidly being depleted, and will last only 20 years at current drilling rates. The government is therefore working to broaden economic activity, encouraging petrochemical, steel and light industries, plus agriculture, despite the difficulties in developing the country’s limited water resources.
- Relations with Israel: Like Oman, Qatar opened interest sections during the Rabin government, and quickly closed it during the Netanyahu government. However, Qatar, is very interested in exporting natural gas to Israel, of which, as noted, it has in plenty.
- Potential for Israeli exports: Due to the lack of water, Qatar relies on imports of agricultural products, amounting to at least $300 million annually. In addition to agricultural exports, there is a demand for semi-processed foods and food supplements.
- Agricultural inputs: Qatar wants to increase its arable land, which is offset by the shortage of water, saline soils and harsh climate. Israeli desert agricultural know-how and greenhouses would probably find a local audience.
- Engineering projects: Qatar is planning numerous projects in the oil, natural gas and heavy industry sectors for this decade. Investment in petrochemical and metals refineries and electricity and water infrastructures are also planned. Qatar’s communications and computer infrastructures are quite advanced, and could absorb advanced services and applications based on its current infrastructure.
Morocco – a barometer for relations with the Arab world
60% of Morocco’s foreign trade is with Europe, especially France. Moroccan economic stability is therefore highly dependent on European economic prosperity. The government is implementing IMF and World Bank-backed reform policies, focusing on cutting government expenditures, changing the tax code, reforming the banking system, easing restrictions on imports, reducing tariffs and liberalizing foreign exchange policies.
Morocco possesses the world’s largest phosphates reserves. Its economy is based on a varied agricultural sector, fishing, tourism and an expanding industrial sector.
- Relations with Israel: Israel’s relations with Morocco have for years been a barometer of its relations with the Arab world in general. Except for the period following the signing of the Oslo accords, Israel’s commercial relations with Morocco kept a low profile. To date, most cooperation was in agriculture, and many Israelis were involved in the establishment of farms in Morocco, developing irrigation systems and in the agricultural inputs sector.
- Potential for Israeli exports: As noted above, agriculture has successful economic relations. Morocco is concentrating on developing and broadening its agricultural sector. Morocco also imports a wide range of food products, including vegetable oils, milk powder, dried fruits and vegetables and sweets.
- Telecommunications: This market is undergoing accelerated growth, and is estimated at $500 million. The government is basing its growth entirely on imports. The environment has also been gaining increasing awareness in recent years, and is also estimated at $500 million. Morocco is particularly desirous of being environmentally friendly in the areas of waste recycling, air pollution, solid urban waste disposal, water purification and air and water monitoring.
Tunisia – an economy undergoing structural reform
Tunisia is the smallest country in North Africa, and since independence in 1956, it has made considerable effort to develop economic activity and social and political stability. Tunisia maintained a socialist orientation for the first 30 years of independence, but has since been undergoing significant structural reform designed to reduce the government’s involvement in the economy.
- Relations with Israel: The history of Tunisia’s relations with Israel is similar to Oman and Qatar. Tunisia quickly expressed open support for the Middle East peace process, backing its support by opening commercial representation in Israel in the mid-1990s. The office was closed during the Netanyahu government, reopened a year ago, and was shut again at the end of last month’s Arab League summit.
- Potential for Israeli exports: Tunisia’s current development plan calls for the expansion of the domestic communications system and for another cellular company for 200,000 users, providing a demand for telecommunications equipment.
- Agriculture: The privatization of the agricultural sector is accelerating the development of milk products, meat, poultry and accompanying industries. The demand for agricultural equipment for farms and agricultural industries is steadily growing.
- Environment: The Tunisian Ministry of the Environment has prepared environmental protection programs, worth $2-3 billion, including sewage treatment plants, and industrial pollution reduction systems.
- Electricity: Tunisia has an extensive program to increase electricity production, opening an opportunity for engineering planning and markets for electrical equipment and components.
Saudi Arabia – open opposition and secret relations
Surprisingly, there is trade between Israel and Saudi Arabia, and it is even growing. Unsurprisingly, the economy of Saudi Arabia – a monarchy with a religious orientation – has the largest GNP in the region, at $130 billion, since it is the world’s largest oil exporter.
Despite its self-assurance and status in the world, thanks to its control of gigantic oil reserves, the Saudis are encouraging the development of other economic sectors, including petrochemicals. Another trend is privatizing and expanding the private sector.
- Relations with Israel: The potential is great, but dependent on the willingness of the Saudis to do business with Israel. In the meantime, there are no open relations, which are conditional on peace treaties with Syria and the Palestinians.
Due to the anti-Israeli atmosphere and encouragement of local products, there is concern that the Saudi public would oppose Israeli brands. However, there are confidential commercial relations that hide the identity of Israeli brands, and trade is actually on the rise.
- Potential for Israeli exports: The medical sector has government priority, and is mostly in the public sector. Saudi Arabia needs electronic medical systems, operating room systems and a range of pharmaceuticals.
- Commincations: Saudi Arabia is interested in advanced applications such as voice transmission, WAN and LAN networks, network management software, etc. for its communications sector. One of the fields the Saudis are pursuing is solar energy and the development of “solar villages” to utilize it. One reason for the interest is the high demand for electricity throughout the country.
- Agriculture: Due to the country’s desert environment, Saudi Arabia is interested in developing desert agriculture, including an agricultural institute and irrigation systems.
Kuwait – The Iraqi factor delays relations
Kuwait and Iraq are like Lebanon and Syria. The Gulf War only proved the pervasiveness of Iraq on Kuwait’s economy. The Gulf War caused massive damage to Kuwait’s infrastructures, including communications and transportation, forcing the government to cut social, education and health services. Since the war, Kuwait’s policy has been to encourage investment in the private sector and the privatization of government companies in order to increase the money supply and employment. Most of the state’s revenues come from oil.
- Relations with Israel and the potential for Israeli exports: Kuwait does not maintain any relations with Israel. There may be some indirect trade, but there is no evidence for it. The main reason for the absence of relations is Iraq’s shadow over the country.
As a result of privatization and private sector growth, Kuwait has many sectors needing an inflow of goods, money and know-how, including equipment and services for the communications equipment, medical equipment, air conditioning and refrigeration, security services, manufacturing monitoring, automation equipment and spare parts, vehicle spare parts, training and personnel services, desert and industrialized agriculture, frozen food, computer equipment, laboratory equipment, medicines and construction materials.
United Arab Emirates (UAE) – the head is deeply buried in the sand
The union of seven emirates, of which Dubai and Abu-Dhabi are the best known, maintains quiet and indirect economic relations with Israel. The UAE’s economy is based on oil and natural gas, and like its neighbors, it is working to broaden its economic activities, focusing on international trade. Dubai, for example, has turned itself into an international trading crossroads, providing regional financial and tourism services. It is undergoing a construction boom, mainly in the services and tourism sectors.
The UAE’s agricultural sector enjoys massive government support, employing local labor. Considerable resources are designated for industrial development, mainly in oil-based petrochemical and plastic industries.
- Relations with Israel: As noted above, relations are kept low key, without public or open acknowledgement. In contrast to Oman and Qatar, the UAE sticks to the official position of the Gulf Cooperation Council, to condemn Israel and avoid any direct contacts with it.
The UAE therefore maintains a two-track policy: On one hand, there was an announcement that companies suspected of trading with Israel would be charged with breaking the Arab boycott, while on the other, it sticks its head deeply in the sand, and Israeli trade is carried out under the stamps of third countries.
- Potential for Israeli exports: The communications sector is steadily growing at 20% a year. Internet and PCs are readily available, and there is high demand for a range of applications and software for institutional and business management and e-commerce.
- Health services: The UAE’s health services are about to be privatized, opening a window of opportunity for medical services, equipment and pharmaceuticals. Despite the extensive investment in agriculture, most food products are imported, a sector that Israel can participate in.
- Air conditioning: The UAE’s demand for air conditioning is quite high, given the climate on one hand and the public’s high purchasing power and low cost of electricity on the other. The UAE is undergoing a construction and tourism boom, further increasing the demand for air conditioning.
- Vehcile spare parts: The local climate and conditions increases wear and tear on vehicles, as well as requiring their frequent replacement. Engine parts are in particular demand, along with maintenance equipment, spare parts and air conditioning.
Published by Israel's Business Arena on 30 October 2000