Israel's top brass made much ado about the peace process during the International Institute for Security Studies conference last week. “This is an opportunity to advance the peace process, an opportunity which may not repeat itself, in my opinion, in the next ten years,” Prime Minister Netanyahu said about his 94-member Knesset coalition. Netanyahu can invoke historic conditions all he wants, but the numbers are in, and a Palestinian state, if declared in the near future, would be economically unsustainable. If the Israeli government is truly set on a two-state solution end to the conflict, it needs to put its money where its mouth is and invest in the ripest sector of the Palestinian economy: private entrepreneurship.
Recent statistics out of the West Bank indicate a struggling and aid-dependent economy that is nowhere near ready for the fiscal burdens of statehood. In the first quarter of 2012 the unemployment rate in the West Bank and the Gaza Strip combined was 23.9 percent. According to the World Bank, the West Bank economy grew at only 5.8 percent in 2011, down from 7.5 percent in 2010. Most of the growth has been subsidized by the foreign aid sector, as the Palestinian Authority's budget has “depended on more than $3 billion in direct donor assistance” since mid-2007, according to the CIA. In fact, total aid is declining, and this year the Palestinian Authority will receive $600 million in foreign aid, down from $1 billion in 2011.
Still, entrepreneurship has begun to take root and pave the way for a profitable private sector that can support a future state, particularly in the West Bank. There are programs like Bidaya, operated by the State Department's Partnerships for a New Beginning Program: The U.S.-North Africa Partnership for Economic Opportunity, an incubator for Palestinian entrepreneurs and their high-growth start-ups that provides capital funding and mentorship. Since 2008, Israeli venture capitalist Yadin Kaufmann and Palestinian software mogul Saed Nashef have raised $28.7 million for their firm, Sadara Ventures, which will exclusively fund Palestinian technology start-ups.
There is no reason why Israel cannot make a similar investment in Palestinian start-ups and in a secure Palestinian economy. The government could match entrepreneurs in the West Bank with Jewish and Arab Israeli mentors. It could hold an annual competition of ideas and award the winner a meeting with a venture capital firm. Instead of building illegal Jewish settlements, the Israeli government could build co-working spaces in Ramallah for Palestinian entrepreneurs.
So why hasn’t the Israeli government seized this opportunity? The most obvious answer is that Israel faces its own economic problems. On Sunday, reported Haaretz, the Finance Ministry presented a 2013 budget proposal that recommended “major spending cuts and tax increases to levels not seen in recent years.” But this does not get to the root of the real issue—that Israeli does not feel it bears responsibility for the future Palestinian state beyond the provisions of a conflict-ending agreement.
Yes, Israel has poured money into developing a Palestinian infrastructure, as stipulated in the Oslo Declaration of Principles, but power plants and paved roads do not grow an economy. Nor do the easing of sanctions and restrictions on aid. An economically weak Palestinian state would also have weak security capabilities and an even worse political situation than at present. Without proper support for the private sector that can only come from foreign beneficiaries, Palestine may very well become a failed state, and Netanyahu won’t be crying.