Marketplace Middle East - Blog
Quietly Delivering Growth

President George W. Bush’s whistle-stop tour of the Middle East is designed to add urgency to the peace process and at the same time heal some business wounds with allies in the Gulf. Remember the Dubai Ports deal debacle? This visit is long overdue.

With instability between Israel and Palestine, the latter’s economy has ground to a halt. It does not help that there is internal friction within the Palestinian Authority as well. That inability to move has drowned out one of the more positive economic and business stories throughout the region; the performance of Israel’s economy. It has chugged along quite nicely, thank you; at 5 percent in 2006 and 2007 and 4 percent growth is projected this year, with the global credit crunch to blame for the dip.

This to me is quite surprising. While there is no shortage of coverage on the Peace Process and work by the Quartet, we hear very little about how Israel continues to expand. Prior to the bursting of the technology bubble in 2000, we heard a lot about Silicon Wadi. The country re-engineered its highly educated engineers and scientists and re-deployed them into technology. Many of them emigrated from Russia after the fall of communism, enriching the bank of creativity.

That was then, but I was unaware that 400 high tech companies were funded in 2006 raising $1.6 billion dollars. More than 100 Israeli companies are listed on the NASDAQ exchange and there is a special index tracking these stocks. There is no doubt that the capital was coming from Silicon Valley and private equity investors or major technology companies would then want to transfer those companies to the United States.

That is quietly changing, along with the mix of trade and the mix of expertise. Israel is no longer overly dependent on hi-tech. It has added biotech, pharmaceutical and specialist chemical companies to the mix. 46 percent of its trade is now done between Europe and Asia. This only makes sense to leverage its location.

So Israel is quietly performing with the help of its secret weapon, the quiet and competent central bank governor, Stanley Fischer. The name is familiar to those who have covered the Asian financial crisis of 1998. He was at the front of the storm as First Deputy Managing Director, offering the bitter medicine many of the countries did not want to take.

Like many of the other leading economists, the Zambian-born Fischer was educated at the London School of Economics before receiving his doctorate at the Massachusetts Institute of Technology (M.I.T.). During his career he also taught at the other bastion for economics, the University of Chicago.

Which means what for Israel? The country can certainly continue to diversify and look east to capture the growth from India to China. It should try to buffer its exposure to the dollar, which remains on shaky ground. And finally stay the course and pray for peace. The economy is in a good pair of hands and if a deal can be found over the next year, there is a dividend waiting. Fischer, like many others, believes that a peace agreement could add another 1-2 % of growth each year.

Who knows, it could even open the way to Israel’s economic integration into the Middle East, although at this stage, that seems difficult to imagine.
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John 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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