An Investment in Mideast Peace

By Gary Heiman

Published July 23, 2004, issue of July 23, 2004.
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There are many reasons why most Palestinians never got an economic peace dividend from the Oslo process in the 1990s, and why the current unemployment rate in the territories is above 50%. Israeli policies certainly contributed. But a big, underreported reason is that attracting private capital and fostering free enterprise never has been a high priority for the Palestinian Authority.

The Palestinians never got a chance to join the global, free-market economy that has raised living standards and instilled new hope in other parts of the developing world. The International Monetary Fund estimates that private investment’s share of the Palestinian GDP dropped to 10% in 1997 from 19% in 1993 — and it has shrunk considerably since then.

The lack of security and stability was one obstacle to investors, but another was the P.A.’s indifference. As CEO of a textile manufacturing concern with factories in 12 countries, including Israel and Jordan, I have tried to invest in the Palestinian territories. But I was confronted with a Palestinian administration that was rife with corruption, inefficiency and apathy.

In searching for new sites for our production facilities around the world, I have learned that even in the most remote, downtrodden places, one can usually find officials who welcome an infusion of new capital that will create jobs and who have the authority to help us overcome bureaucratic obstacles — everywhere, it seems, except in the P.A.

Instead of a free market, the P.A. developed a centralized bureaucracy in order to give people jobs, compete with the social welfare system of Hamas and maintain tight control. This flawed approach was encouraged by an international community that has poured billions of dollars directly into the P.A.’s coffers.

Still, despite many impediments, some private investors and like-minded Palestinian officials did not give up on the Palestinian people. In 2000, I planned my company’s involvement in an Israeli-Palestinian industrial zone in Jenin. Modeled after an Israeli-Jordanian industrial zone in Irbid, Jordan, where we have two factories with hundreds of employees, it was to be the first of seven zones in the West Bank.

Everyone involved in the Jenin project understood that while making a profit was one motivation, we were trying to help create an atmosphere conducive to negotiations and political progress. We believed that Palestinian employees would be hard-working, talented and highly motivated. We also knew that without jobs, Palestinians would have a hard time believing that cooperating with Israel would have tangible value. Our plans were shattered by the intifada. But it is not too late to revive them.

Prime Minister Sharon’s proposed withdrawal from Gaza could help to revive free enterprise there. Industrial zones resembling those planned in the 1990s could play an important role. They could be established even if the political status of the West Bank is uncertain and there is a short-term diplomatic stalemate on final-status issues. Conditions in Gaza are so dismal that it makes sense to try to create an economic horizon even if the political horizon is still murky.

The Palestinians should have authority over these zones. But because their economic future is central to regional stability, I believe that business people from Israel and abroad would also be eager to participate under the right circumstances.

I know a number of Palestinian, Israeli and American business people who would consider sites in Gaza or the West Bank for new factories and other ventures. Their most important requirement is a guarantee that their employees and physical facilities will be protected from terrorist attacks. Arafat has been unable or unwilling to provide this kind of protection, and the recent chaos in Gaza shows how difficult it will be to fill this security vacuum. But it will not be impossible — if the international community pitches in.

Egypt, in particular, has been in contact with both Israel and the Palestinians about security arrangements in Gaza if Israel withdraws. Israel, Egypt, the United States and other powers have a strong, mutual interest in preventing terrorists from wreaking havoc in Israel. Protecting industrial zones in Gaza should also be a priority.

Of course, many questions need to be answered about the economic system of a Palestinian entity in Gaza. But now that Sharon’s Cabinet has approved the withdrawal, it is the time for Palestinian and Israeli officials — with the help of outside powers — to start planning for a new, improved Palestinian economy that offers favorable conditions to private investors.

Everyone except terrorists will win if that happens.

Gary Heiman, president and CEO of the Cincinnati-based Standard Textile Co., is a board member of Israel Policy Forum.

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