In her first public speech since being nominated as Bank of Israel Governor, Karnit Flug on Tuesday said Israel must deal with the problem of discrimination against its Arab population, or suffer the economic and social consequences.

Speaking at the third annual Prime Minster’s Conference on economic issues, this year focusing on the Arab sector, Flug said that in addition to increasing education and training, “the incidence of discrimination must also not be ignored, and we know that the Arab public has difficulty integrating into certain industries, even if the appropriate training is provided.”

Flug called out the hi-tech sector in particular, where she said that even well-trained Arab Israelis have trouble successfully integrating.

“The Arab population in Israel contains immense untapped potential from the standpoint of the Israeli economy’s growth capability. Beyond the economic potential, the issue also contains highly significant social potential,” she continued.

Despite overall good economic condition in Israel, the low labor force participation of Arab women, as well as Haredi men, represented long-term problems for the Israeli economy. Whereas 70% of the general population participates in the labor force, only 29% of Arab women do.

Given demographic trends, if circumstances do not change the economy can expect to lose 1.3% of annual economic growth, Flug said.

“The successful integration of the Arab public into the labor market in particular, and into the economy in general, is a very important, even essential, component of the Israeli economy’s ability to continue to grow, and to support a higher standard of living for all Israelis,” she concluded.

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