The power of capital
I was fortunate enough to have covered the fall of the Berlin Wall 18 years ago this month and the domino effect it had thereafter, not only on communism but also on investment.
The fall of the wall unleashed pent up demand for reconstruction, partly out of pure capitalist opportunity and partly out of obligation in a drive to rebuild East Germany after 50 years apart from their German brethren.
I still have a vivid picture in my mind of going to a paint factory during the first unified elections and watching a group of West German investors observing the decrepit state of affairs: dye on all the walls, machinery that did not work, workers themselves who decided not to show up until their future would be clarified. Or another stark example, where East German workers elected to paint the hammer and sickle on the last refrigerator they made under communist rule. Both factories were bought out and built up, actually expanding operations and adding jobs.
Far away in California workers on the Raytheon Aerospace production line were forced to re-train and adapt to realities of a peace dividend and re-tool for the future. They did so after a painful five-year transition. Arguably, the entire U.S. economy benefited from diversification and a lower dependence on defence.
As leaders met in Annapolis trying to rekindle the peace process, one cannot help but draw historical parallels, knowing that opportunity is waiting and money is sitting on the sidelines. Three years ago there was a whiff of peace in the air and it unleashed a wave of privatisation, with the Palestine Securities Exchange of 33 companies moving up 8-fold in a span of a year. After a change in power, that opportunity and optimism dried up.
So, let's not get overly excited just yet, but at the same time let’s size up the potential and some of the initiatives that are on the table. It is encouraging that Saudi Arabia wanted to be present in Annapolis. This reflects their greater say within the Gulf Cooperation Council and the Arab League, plus the opening up of their economy to investment. I also find encouragement in the Industry for Peace initiative running in parallel, driven by Turkey's Union of Chambers and Commodity Exchanges, to revive the Gaza Industrial Zone.
While Turkey’s path to European Union membership remains unclear, the role it can play as a secular non-Arab Muslim nation and an ally of Israel is unique and potentially promising. Less encouraging were the immediate protests we all witnessed as leaders met in the U.S. Palestinian President Mahmoud Abbas is struggling with Hamas for control of territory. Hamas, which currently controls Gaza, opposed the talks at the U.S. Naval Academy.
But there is a lot to be said about the power of capital. One wave leads to the next and carry with them momentum for change, company creation and, most importantly, job creation to a population that for too long has been isolated and unemployed.
Four out of ten Palestinian people live below the poverty line; 40 percent remain unemployed. Without peace, don’t expect those numbers to go down or the money which was in full force three years ago to come off the sidelines again.
ABOUT THIS BLOGJohn Defterios’ blog accompanies the weekly business program, Marketplace Middle East (MME) that is dedicated to the latest financial news from the Middle East. As MME anchor, John Defterios talks to the people in the know, finding out their opinions on the big business moves in the region, he provides his views via this weekly blog. We hope you will join the discussion around the issues raised.
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