Local business not 'excited' by Annapolis

Standard & Poor's, which raised Israel's credit rating, said that Annapolis could further impact the country's credit rating.

annapolis biz 224 (photo credit: AP)
annapolis biz 224
(photo credit: AP)
As the country's political leaders gathered in Annapolis to negotiate a possible final status agreement with the Palestinian Authority, economists and business leaders were mixed over the potential impact such a settlement is likely to have on the resilient local economy. "It depends if everything goes well, it could have a positive effect, but if not, it can go the other way as well," Shlomo Maoz, chief economist at Excellence Nessuah, told The Jerusalem Post. "We have seen a massive increase in Foreign Direct Investment (FDI) over the last few years and if an agreement is reached, it could really increase this amount, while no progress could bring about a drop-off as much as 20 percent in FDI as investors would then shy away." A decrease in foreign investment however, noted Maoz, could really be a blessing in disguise. "A negative could really be a positive here as a drop in FDI would weaken the shekel, which in the long run is actually better for the local economy." Roby Nathanson, an economist and director of the Macro Center for Political Economics, said that with the right results, the Annapolis conference could prove to be a boom to the local economy. "An Israeli-Palestinian solution might have an enormous impact in the long term, but in the short term it won't make much of a difference," he said, adding that should nothing be achieved, the Israeli economy would not suffer. "If nothing is generated but the same results, I don't see any negative for the local economy- Israel really has nothing to lose in this sense." While a settlement with the Palestinian Authority is important, according to Nathanson, if Annapolis can produce an agreement between Israel and Syria, that would open a whole new world for the Israeli economy. "If we can achieve peace with the Syrians, we could build a direct [transportation] connection to Turkey and then into Europe through Syria," Nathanson said. "We can only dream about this for the meantime." Others are not so confident that the long talked-about and highly-anticipated peace summit will produce anything significant for the local economy. "We in the business sector watch developments in Annapolis- not excitedly, but calmly, as we believe that it won't bring about a dramatic change," Uriel Lynn, president of the Federation of Israeli Chambers of Commerce, told the Post. "Right now, the attitude in the country's business sector is very positive and we don't need an impetus to get the economy moving- it will keep moving without one. In order to make a dramatic change, there needs to be true progress; if they achieve this, it will accelerate the economy, but there needs to be something substantial, such as agreements on key issues." In a report released ahead of the summit, Citigroup Global Markets said this week that Annapolis' "near-term implications for the Israeli economy and financial markets are likely to be limited, at best." According to Citigroup, the two risks that would probably have significant consequences for the local economy- renewed terrorist attacks on Israeli soil and an escalation in tensions between the West and Iran, related to Iran's nuclear ambitions- will not be resolved in Annapolis. "In either of these scenarios, private-sector confidence will suffer, potentially undermining the mix of strong economic growth and inward FDI that have been the key to shekel strength and low interest rates over the past year. But the conference is unlikely to bring any significant progress in reducing these risks. Iran and Hamas, two major parties involved, are not coming to Annapolis," said Citigroup. Standard & Poor's, which on Tuesday raised Israel's credit rating for long-term foreign and local currency, said that Annapolis could further impact the country's credit rating. "Any material progress toward a settlement of the key security issues would impact favorably the ratings through positive repercussions on domestic stability, economic growth and investor confidence," said S&P's credit analyst Veronique Paillat-Chayrigues. Meanwhile on Tuesday, research company Dun & Bradstreet reported in its International Risk Review of Middle Eastern countries that Iraq presents the greatest risk to investors in the region. The International Risk Review, which considers both economic and political factors when assessing a particular country's risk level, said Iraq's standing as the oil capital of the world makes it a very unstable country in which to invest. While the region's inherent fragility may drive away investors, the director general of Dun & Bradstreet, Reuven Kuvent, sees great growth potential for the Middle East. "The economies of Middle Eastern countries have a lot of potential for achieving growth as a result of improved political and security situations," he said. "An immediate political improvement in the relationships between the countries will lead to an improvement in business relationships and the development of a more secure region in which to conduct business." Israel, along with Saudi Arabia, Egypt and Jordan was assigned a "low" risk assessment by Dun & Bradstreet.