The Economic Roadmap to Peace in the Middle East

The Economic Roadmap to Peace in the Middle East

US$ Billions 4.8 Palestinian Authority GDP 4.2 3.7 3.1 2.6 2.0 94 95 96 97 98 99 00 01 02 03

The Palestinian Authority Labor Market PA West Bank Gaza Employer 3.9 4.7 1.8 Self Employed 26.2 27.6 22.6 Employee 57.3 53.8 66.7 Unpaid 12.6 13.9 8.9 Total 100 100 100

Palestinian Authority Unemployment Percent 40 32 West Bank and Gaza Gaza West Bank 24 16 8 0 95 96 97 98 99 00 01 02 03 04

Palestinian Authority Unemployment by Age Group Percent 49 42 Total Male 35 28 21 14 15-19 20-24 25-29 30-34 35-39 40-44 45-49 50+

NIS 140 120 Wages of Palestinian Authority Workers West Bank Israel and Settlements Gaza 100 80 60 40 Median daily net pay Mean daily net pay

Poverty in the Palestinian Authority Percent of employed in poverty 60 51 42 33 24 15 2000 2004

Middle East Overview 2% 2% 3% 1% 2% 1% 3% 3% 4% Inflation 50% 3% 2% 25% 22% 19% 14% 30% 10% Unemployed -22% 9% 5% 5% 3% 6% 6% 3% 3% Real GDP growth $800 $21,500 $23,200 $11,800 $4,300 $4,000 $6,900 $6,400 $3,710 GDP per capita $2 $18 $58 $288 $24 $128 $69 $35 $295 GDP (bls) 32 Morocco 9.9 Tunisia 5.6 Libya 25.8 Saudi Arabia 5.7 Jordan 4 UAE 2.3 Pal. Auth. 0.84 Qatar 76 Egypt Population (mls)

Middle East Stock Market Overview 2000 2001 2002 2003 2004 Egypt 716 490 493 1156 2568 Tunisia 1356 990 770 953 957 Morocco 3995 3607 3980 3936 4521 Saudi Arabia 2258 2430 2518 4437 8206 UAE 98 104 153 321 Qatar 123 169 2323 3946 321 Pal. Auth. 208 195 151 180 278

Oil Prices Real and Nominal US$ per barrel 100 Oil nominal price Oil real price 80 60 40 20 0 80 84 88 92 96 00 04

Middle Eastern Equity Indices Have Soared Since the End of the War 2000=100 500 400 300 Egypt Israel Jordan Kuwait Lebanon Saudi Arabia UAE End of open hostilities in Iraq 200 100 0 00 01 02 03 04

The Region s Main Stock Markets 1995=100 800 640 480 Egypt Israel Saudi Arabia 2nd Intifada End of War in Iraq Sharm Summit 320 160 0 95 96 97 98 99 00 01 02 03 04

Jordan, Israel and the Palestine Authority Stock Markets 2002=100 210 Palestinian Authority Israel Jordan 180 End of War in Iraq Sharm Summit 150 120 90 60 2002 2003 2004

Capital Access Index Gauging Entrepreneurial Access to Capital Max = 7 6.0 5.5 5.0 4.5 USA Israel Kuwait Jordan Egypt 4.0 Saudi Arabia 3.5 3.0 2.5 2.0

Opacity Score Card Max =100 70 Egypt Lebanon 60 50 40 Israel Saudi Arabia 30 20 10 0

The Region s Largest Economies GDP, $US billions 200 Israel Saudi Arabia 160 Iran Egypt 120 80 40 0 60 70 80 90 00

Inflation in the Region s Largest Economies CPI, % change 40 Israel Saudi Arabia 30 Iran Egypt 20 10 0-10 60 70 80 90 00

Balance of Payments in the Region s Largest Economies US$, billions 80 Israel Iran 60 Saudi Arabia Egypt 40 20 0-20 1975 1980 1985 1990 1995 2000

Growth in Israel s Neighbors GDP, $US billions 20 Syria Lebanon 16 Jordan West Bank and Gaza 12 8 4 0 60 70 80 90 00

Inflation in Israel s Neighbors CPI, % change 15 Syria Jordan 10 5 0-5 -10 60 70 80 90 00

Slow Economic Growth in the Gulf GDP, $US billions 80 UAE Oman 60 Bahrain Kuwait 40 20 0-20 60 70 80 90 00

Rapid Labor Growth in the Gulf Labor force, millions 2.0 UAE Oman 1.6 Bahrain Kuwait 1.2 0.8 0.4 0.0 60 70 80 90 00

GDP, $US billions 100 Algeria Tunisia 80 Slow But Stable Economic Growth in the Maghreb Morocco 60 40 20 0 60 70 80 90 00

Inflation in the Maghreb CPI, % change 24 Algeria Tunisia 18 Morocco 12 6 0-6 60 70 80 90 00

The Middle East Comprises 5% of World Population Middle East Other

The Middle East Comprises 2% of World Output Middle East Other

The Middle East Comprises 60% of World Terrorism Other Middle East

Population is Burgeoning Mean % change, 1990-2002 2.4 2.0 1.6 1.2 0.8 0.4 Middle East High Income U.S.

Per Capita GDP has Stagnated Mean % change, 1990-2002 1.68 1.62 1.56 1.50 1.44 1.38 Middle East High Income U.S.

Per Capita GDP has Fallen in Some States % change, 1980-2002 90 60 30 0-30 -60 Jordan Bahrain S. Arabia Algeria Syria Israel M. East U.S. Egypt Hi. income

Banks are Poorly Run Bank Governance: CAI 2004 7.0 6.3 5.6 4.9 4.2 3.5 Moroc. Egypt S. Arabia Kuwait Jordan U.S. Qatar UAE Israel Bahr. Oman Lebanon

Equity Markets are Inefficient Equity Markets: CAI 2004 5 4 3 2 1 0 UAE Iran S. Arabia Oman Jordan Egypt Israel Qatar Moroc. Lebanon Bahr. Kuwait US

Entrepreneurs Lack Capital Capital Access Index 2004 5.6 4.9 4.2 3.5 2.8 2.1 S. Arabia UAE Moroc. Lebanon Kuwait Israel Iran Qatar Egypt Jordan Oman Bahr. U.S.

Middle Eastern Countries Trade % of World Total 2.60 2.40 2.20 2.00 1.80 1.60 Trade GDP

Middle Eastern Countries Trade - But Not With Each Other Intraregional Trade, % of Total Trade 100 80 60 40 20 0 Middle East Africa N. America Lat. America Asia West. Europe

Repression is Commonplace Political Rights, lower is better 10 8 6 4 2 0 Syria S. Arabia Iran UAE Qatar Lebanon Jordan Kuwait USA Egypt Algeria Oman Bahrain Israel

Civil Rights are Violated Civil Liberties, lower is better 10 8 6 4 2 0 Syria S. Arabia Iran UAE Qatar Algeria Oman Kuwait USA Egypt Jordan Lebanon Bahrain Israel

Private Property is at Risk Property Rights, lower is better 5 4 3 2 1 0 Iran Syria Jordan S. Arabia Egypt Oman UAE Israel Bahrain USA

Low Incomes in the Middle East US$ GDP Per Capita 35000 28000 21000 14000 7000 0 Egypt Jordan Iran LebanonS. Arabia Kuwait UAE Syria Moroc. Algeria M. East Oman Bahr. Israel USA

% of Population Aged Under 14 48 Young Populations in the Middle East 42 36 30 24 18 S. ArabiaJordan Algeria Moroc. Iran Israel Kuwait USA Oman Syria M. East Egypt Lebanon Bahr. Qatar UAE

% Unemployed 50 Few Opportunities in the Middle East 40 30 20 10 0 Algeria S. Arabia Moroc. Iran Pales. Auth. Jordan Syria Lebanon Egypt Kuwait Israel USA

Israel s Stock Market Performance 1995=100 360 300 240 180 120 60 95 96 97 98 99 00 01 02 03 04

1995=100 360 300 Israel s Relative Stock Market Performance Israel (TSE-25) Dow 240 180 120 60 95 96 97 98 99 00 01 02 03 04

1995=100 700 560 Israel s Relative Stock Market Performance Israel (TSE-25) NASDAQ 420 280 140 0 95 96 97 98 99 00 01 02 03 04

Real GDP Growth in Israel Real GDP, % change 10 7 5 2-0 -3 60 65 70 75 80 85 90 95 00

Labor Force Growth in Israel Labor force, % change 15 12 9 6 3 0 60 65 70 75 80 85 90 95 00

Inflation in Israel CPI, % change 16 12 8 4 0-4 80 82 84 86 88 90 92 94 96 98 00 02 04

US$, billions 6 Israel s Balance of Payments 3 0-3 -6-9 1975 1980 1985 1990 1995 2000

Impact of the Intifada on Tourism Thousands of Nights in Hotels 15000 Foreign Guests Israeli Guests 12000 9000 Start of Intifada 6000 3000 0 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004

Israeli Banks Foreign Assets and Liabilities NIS millions 300000 280000 Foreign Currency Assets Foreign Currency Liabilities 260000 240000 220000 200000 2002 2003 2004

Princess Diana s Tragedy: a Global Incident

The Capital Market: A Milestone on the Economic Roadmap to Peace

The Role of the Capital Market 1. The centrality of capital market and globalization on facilitating economic growth and equality among nations 2. Capital markets and globalization transcend political, national and social boundaries, thereby increase interdependence, reciprocity and cooperation

Capital Market: The Magic Triangle

Globalizing the Capital Markets Increasing cooperation and interdependence among nations Countries that do business with each other tend not to fight each other

The Israeli Experience Using the capital market to promote national infrastructure projects The Project Highway 6 (Cross- Israel) The Carmel Tunnel Ashkelon Desalination Plant The Contractor Canadian Highways Infrastructure Corporation (Canada) Dragados (Spain) Vivendi (France)

Municipal Bonds Need to finance municipal projects such as water and sewage systems The Municipality lacks available capital Issue Municipal Bonds

ISA s Contribution to the Globalization of the Israeli Economy Adoption of all international accounting standards by 2008 Alignment of Israeli securities laws with those of international recognized standard setters (IOSCO) Introducing a wide variety of financial products to the Israeli market Adopting corporate governance code and encouraging listed companies to adopt code of ethics Facilitating the cooperation of Tel Aviv Stock Exchange with other stock exchanges

Globalizing Israel s Economy 1. Reducing tariffs and other trade barriers 2. Introducing structural changes to render the economy more competitive 3. Reducing the government s restraints and interference in the capital markets and achieving price stability

The Regional Dimension Give me a lever long enough and a fulcrum on which to place it, and I shall move the world Archimedes

The Regional Dimension Forming economic ties and relations between markets - Archimedic leverage for the improvement of the political relations Stagnation: The Middle East fails to engage with world economy Israel-Jordan Qualified Industrial Zone (QIZ): Joint venture has increased Jordanian export to US by 4000% Israel-Egypt QIZ: Signed in December 2004 BOT: A successful model to finance national projects Adoption of BOT on regional level: a major step toward the building of a modern Middle East economy

Conclusions Israel s economy is globally oriented Israel is ready to meet the needs of international investors Israel is ready to develop its economic ties with neighboring states

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