The Israeli government embarked on its first major financial initiative to strengthen Arab-owned businesses by releasing a 160 million shekel ($40 million) tender late last week to support the integration of these companies into the overall economy.
The program provides 80 million shekels of government money to the winning bidder of the tender who must match or exceed the government’s investment in the equity fund. The government anticipates announcing a winner in late November or early December.
Representatives of the Center for Jewish-Arab Economic Development expressed urgency in bolstering Arab-owned businesses due to potentially detrimental effects on the overall Israeli economy.
“If Arabs won’t be successfully integrated into the employment and into the business life in Israel, Israel’s [gross domestic product] is in significant danger of sliding back,” CJAED executive chairman Eytan Biderman said in an interview. “It is quintessential for the Israeli economy that Arabs will be integrated more successfully now, not in five years.”
The Prime Minister’s Office spearheads the initiative and acknowledges the positive effect that economic integration of Arabs could have on the overall economy.
“This investment can bring a lot of profit to the Israeli market,” Aiman Saif, General Director of the Authority of the Economic Development of the Arab Minorities in the Israeli Prime Minister’s Office, said in an interview. “The Israeli-Arab sector can help the Israeli economy to expand rapidly.”
The Arab population in Israel, approximately 20-percent, suffers from higher unemployment and significantly lower involvement in the workplace.
The Arab business sector recently began garnering international attention as a prime investment opportunity due to improved equality, underdevelopment in Arab towns, youthful populations, and its position directly within Israel, a highly developed country.
“You simply don’t see it anywhere else,” Gary Pickholz, a senior partner at a major international investment firm, said in an interview. “It represents a clientele and population vastly in excess of its own size and it is a true first level emerging market in one of the prime investment markets of the world.”
Even though the Arab business sector is ripe for increased investments, the government initiative will likely only attract socially-conscious investors.
“I guess most investors… in the world won’t go for this project. But, there is a social responsibility for socially aware investments and there are people who feel that they have the resources,” Biderman said. “They are interested in allocating a certain fraction of these resources for a cause that they think is important.”
The program exclusively funds Arab-owned businesses, which generally embody traditional industries such as furniture, textiles and plastics. However, Saif stated that Arab business sector recently began developing its ability to accept outsourcing in the computer, internet, and financial services fields.
“I think that you can find very, very interesting businesses in the Arab sector,” Saif said. “We think that there are opportunities in the Arab sector that are not being explored.”
Supporters of the new equity fund laud the government’s matching funds as a major positive aspect to the initiative, contending that investors lack significant risk through this type of investment program.
“The significant subsidy by the government makes it more likely than any other investments to end up being profitable in the future,” Biderman said. “This kind of investment is for the socially aware, socially motivated investor but this specific investment also offers a reasonable risk-return structure.”
However, some investors contend that the program only caters to small firms due to the relatively minor amount of funds invested by the government. Instead, larger firms believe that the new government formed under current Prime Minister Binyamin Netanyahu will initiative another program with significantly more funding.
“This program by design ignores almost all major investment programs in the Israeli-Arab community. It is designed almost exclusively for small business, small investment,” Pickholz said. “We would look forward to the next round, and I believe it would come, to a far more ambitious program.”
Pickholz added that investors have received funding from other governments and organizations for investment projects in Arab-Israeli towns. These programs all offer equal or better terms than those offered through the new initiative.
“There is no program that is worse than the Israelis and some are in fact better,” he said. “[The Israelis are] not spending an enormous amount of money and [they are] patting themselves on the back.”
Pickholz contends that Arab towns need investments in core infrastructure, such as sewage systems, transportation, industrial parks, and gas pipelines. The program, he states, lacks enough funding to invest in these areas.
Regardless of his criticisms of the program, Pickholz acknowledge the unique opportunity afforded to Arab businesses through the Prime Minister’s Office.
“There’s no question it’s important. There’s no question I want to encourage it. There’s no question it’s a leap forward,” Pickholz said.
According to Saif, approximately 11 groups, including international firms as well as domestic investors, expressed initial interest in the program.
The government advertised the program in both Hebrew and English in Israeli media as well as through the Arab press.
CJAED met with a group of approximately a dozen leading Arab businessmen that would either join a bidder or the winner of the project in order to bolster the initiative’s impact.
“They would discuss with us various deals, discuss the possibility of joining one of the groups as an organized group to make sure the business community is involved,” Biderman said, noting the cultural ramifications of Arab involvement in the project. “It’s not easy for them because in the tradition of Arab business people, usually one invests in one’s family’s business.”
The equity fund model could also influence future projects to bolster the economy of the Palestinian Authority. Moreover, other initiatives spearheaded by CJAED, such as joint employment zones and industrial parks, could also serve as a template for increased integration of the regions economies.
“We believe our model of creating joint employment zones within Israel can be a very good model for joint Israeli-Palestinian employment zones along the green line,” CJAED director Helmi Kittani said in an interview.
Biderman noted that CJAED worked extensively with the Palestinian Authority from 1993 through the outbreak of the second intifada. However, enacting the same economic initiatives in the West Bank would encounter additional hurdles, such as checkpoints.
CJAED urged the creation of the Authority of the Economic Development of the Arab Minorities and the private equity fund at its 2006 annual conference.
The authority is primarily focusing on the equity fund, although the office will also embark on other initiatives, such as the creation of a database of Arab businesses and programs to encourage the involvement of Arab college graduates in the private sector, according to Saif.
“We hope because of the whole change of the policy in the world over the leadership of [U.S. President Barack Obama]… the Arab citizens in Israel could get a chance, an opportunity for integrating,” Kittani said.
A few months ago, I wrote about the early stages of the conflict in Ukraine through the lens of Sun Tzu’s The Art of War. While it appears likely that the war will carry on into the foreseeable future, enough time has passed for us to make an honest assessment of each side’s relative […]
The Ukrainian Army has made dramatic strides in the last few weeks. Ukraine’s tactical commanders have outfoxed their Russian counterparts, and by issuing a feint towards the south the UA has been able to earn substantial gains in the north of their country. The impact of these efforts have been compounded by the steady stream […]
In mid-May the Irish political party, Sinn Féin, won the plurality of seats in the Northern Ireland Assembly. Many American readers might not fully understand the significance of Sinn Féin’s political victory- but rest assured that subjects of the United Kingdom and a wide range of political movements the world over have heard the message […]
The first wave of the Russian offensive in Ukraine has fallen short of Russian autocrat Vladmir Putin’s ambitions. Most analysts deduced that Putin had hoped to achieve a decapitation strike of the Ukrainian government- taking Kiev and replacing Ukrainian President Vladimir Zolinski with a pro-Kremlin voice. Kiev has been threatened repeatedly through the course of […]
On the weekend of March 26th, the notorious MS-13 gang went on a massive killing spree in El Salvador which left more than 70 people dead by Sunday. Even for a country where powerful gangs hold massive sway, this recent tragedy stands out considering that it was the bloodiest day on record since the civil […]
