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	Israel		Info-Prod Country Guide
CHARACTERISTICS   INDICATORS   THE ECONOMY   PRINCIPAL SECTORS   INVESTMENT ISSUES   PROJECTS   PROSPECTS

Principal Commercial and Political Characteristics General The Israeli economy is characterized by modern industry, technological and scientific know-how, intensive activity in foreign trade and a well-developed financial market. Since Israel has few natural resources apart from a highly skilled labor force, priority is given to investment in research and development activities in an effort to promote the technological and qualitative edge of Israeli products in international markets. In addition, Israel boasts a sophisticated service sector, which gives full support to industry through banking, accounting, legal and technological services. Commercial Outlook Following the signing of the peace agreements with Jordan and the Palestinians, expectations of peace had a positive influence on the Israeli economy. While initial effects have already begun to be felt in the financial policy of large concerns as well as in the capital market, the long-term economic ramifications of the peace process on the Israeli economy, particularly in terms of returns on foreign investments, are expected to be far-reaching.   Israel has already begun to enjoy the initial fruits of the peace process. Diplomatic relations have been established or renewed with a multitude of countries, including the countries of the former Soviet bloc, China and India. It is expected that Israel's improved international standing will lead to increased integration of the Israeli marketplace with world markets. This prospect, reinforced by significant changes in recent years to the Israeli economy and capital markets, particularly in terms of decreased government involvement, has already led international investors to express increased interest in investing in Israeli industry and projects.   The prosperity that Israel expects to enjoy as a result of the peace process will not be dependent directly on increased commercial contacts between Israel and the Arab world. The primary benefits of the peace process will be improved economic links between Israel and the western world, which will be reflected by increased foreign investments, particularly, as the Arab boycott of Israel loses some of its impact. Increased contacts with the Arab world and multilateral discussions relating to such vital issues as arms limitation, solution of the refugee problem, energy, transportation, water and regional cooperation are expected to have great economic impact.   Jordan and Israel traded goods worth US$ 18 million in the second half of 1996 after opening the border to cargo in June 1996 for the first time in nearly fifty years. Israel exported US$ 12.25 million in goods and imported US$ 5.75 million from Jordan. In addition, Israel set up trade missions in Doha and Muscat in 1996, a step that is expected to facilitate commercial relations with those countries.   Israel's immediate challenge, however, and that of Benjamin Netanyahu's government, is to combat the current slide in the economy and the growing unemployment rate. Specifically, the government hopes to capitalize on the recent IMF ranking of Israel as an industrialized country as well as positive political developments to spur a renewed flow of foreign investment, similar to that of the early stages of the peace process. Political Outlook After long negotiations, a strained if not extinguished sense of mutual trust and even violent clashes, Israeli Prime Minister Benjamin Netanyahu and Palestinian Authority (PA) Chairman Yasser Arafat finally signed an agreement in January 1997 regarding the re-deployment of Israeli forces from the West Bank town of Hebron.   The peace process in general is expected to benefit from a burst of optimism thanks to the Hebron agreement, but the future holds more complex issues that must be addressed, such as the status of settlers and refugees and the future of Jerusalem.   Netanyahu has also been under increasing pressure and criticism from right-wing elements within his coalition. These internal divisions were evident following the Hebron agreement and have resurfaced recently over the decision whether to build new housing projects in East Jerusalem.   Delays in signing the Hebron agreement and the growing tension between the two sides, partly as a result of increased activities on behalf of opposition movements from both sides, placed the future of the peace process in jeopardy. This was witnessed in Israel's deteriorating relations with its Arab neighbors, including Egypt and Jordan, the two countries with which Israel has already finalized peace agreements.   Additionally, the political and commercial relationships that emerged between Israel and the Gulf states, most notably with Qatar and Oman, quickly froze in the absence of progress on the Israeli-Palestinian front. The Omani commercial representative, sent to Israel in 1996, was called home by Muscat in January 1997 in response to the Israeli right-wing government's policy toward the peace process. Discussions regarding the Israeli import of Qatari liquefied natural gas (LNG) also stopped as progress with the Palestinians stalled. The six GCC states say they will consider establishing diplomatic ties with Israel only when a just and comprehensive peace that includes Syria and Lebanon is reached. Contents Menu Next Chapter

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