Extract from an article in Issue 20, January 21, 2008 of The Jerusalem Report. For full story please subscribe to The Jerusalem Report click here to subscribe. The dearth of industrial areas in Arab localities has depressed initiative and entrepreneurship At the moment, it is just a dusty construction site near a paved road. But Tawfiq Karaman, director general and treasurer of the Umm al-Fahm municipality, is convinced that the 120,000 sq. meter industrial park, scheduled to open within a year, will enable the city to have its own mid- to large-scale industrial concerns for the first time. Umm al-Fahm, a city of over 43,000 residents along Route 65, the main road connecting Israel's central plain with the Galilee, is the second largest Arab city - and largest Muslim city - in Israel. It is the commercial center for the many villages in the area known in Hebrew as the Ir'on Valley (although Arabs and Jews alike refer to it by its Arabic name, Wadi Ara). Wadi Ara contains 26 Arab localities, including Ar'ara, Baqa al-Gharbiya, Jatt, Kafr Qara and Musmus in addition to Umm al-Fahm, home to nearly 100,000 people. Wadi Ara was also the site of rioting in October 2000, during which 13 Arab citizens were shot and killed by Israeli police forces. It is home to both a growing Islamic movement (the mayor of Umm al-Fahm, Sheikh Hashem Abd a-Rahman, is a prominent member of the Islamic Movement in Israel) and a secular, upwardly mobile population. But it is difficult to be upwardly mobile in Wadi Ara, a region that provides a troubling example of the difficulties facing the Arab sector in Israel. Not that the entrepreneurial spirit is lacking. There are an estimated 600 small to medium light-industrial private companies and workshops scattered in Umm al-Fahm - but nearly all are located in residential areas, posing safety and health hazards and limited potential for growth or expansion. Now, all that may change. The proposed industrial area is expected to both provide jobs and give the municipality a new source of tax revenues. And parallel to this, Umm al-Fahm has also concluded negotiations for joining the neighboring local authority in a joint Jewish-Arab industrial area. Taken together, the two projects could boost the economy of the city, in which nearly one-third of its residents live beneath the poverty line. "We expect some 150 to 200 private businesses will relocate from residential areas to the industrial zone," says Karaman. "That will affect immediately several thousand working individuals, and the benefits of the greater space for businesses and concentrated infrastructure should enable them to expand employment opportunities even further. These are not going to be small shops - we hope to have large factories open in the industrial area." Just as important will be the property tax revenue. Arab localities typically collect less in property taxes than their Jewish neighbors, at least partly due to the fact that, in the absence of industrial areas, Arab localities depend primarily on property taxes collected from households as opposed to businesses, from which collection is easier - and the tax rates charged higher. Karaman tells The Report, "We expect to levy property taxes of at least 60 shekels per year per square meter in the industrial park, compared to the less than half of that which can be collected from a household. Even estimating conservatively, that is 6 million shekels ($1.4 m) a year in revenue just from property taxes in the new industrial area." Developed countries have long recognized that it is necessary to separate industrial areas and residential areas. In addition to shielding the population from environmental hazards, such concentration provides economic advantages. The concentration of dedicated infrastructure, such as transportation access, electrical supplies, communications cables, and water and gas lines, in delimited areas reduces per-business costs for infrastructure, enables greater scaling-up and easier start-up for industrial concerns, and makes environmental regulation and control easier to attain. Israel has long had well-planned and -regulated industrial areas. And many local authorities also establish small industrial estates within their jurisdictions to boost local employment and collect higher property taxes. So why are these so absent in Arab areas? Faisal Mahargreh, director of the Business Unit at the Center for Jewish Arab Economic Development in Herzliya attributes the problem to discriminatory allocation of lands by the state. "Most of the industrial areas were not built on private land purchased by municipalities," he says, "but on state-owned land that was registered as 'administrative land,' zoned for industry, and granted to localities at the national level. But administrative land either was not granted to Arab localities or was not zoned for industry... The nearby Megiddo Regional Council, for example, was allocated ample administrative lands, but land near Umm al-Fahm was zoned either for nature reserves or military use." Shalom (Shuli) Dichter, co-director, with his colleague Ali Haider, of Sikkuy, the Association for the Advancement of Civic Equality in Israel, views the lack of industrial areas in the Arab sector as a failure of national government policy. "Industrial areas don't develop spontaneously," Dichter observes. "They require facilities, planning and money. In Jewish towns top-down government financial assistance is given as incentives for development and attraction of businesses." But not for the Arab sector. Karaman tells The Report that the total bill for the construction of the new Umm al-Fahm industrial area will be 40 million shekels. "We have received 8 million shekels from the Ministry of Trade and Industry, and a further 5 million shekels from the Prime Minister's Office. But we need to scramble to find additional sources to foot the bill for the full project." In addition to industrial areas located entirely within one locality, there are also large regional industrial zones that are administered cooperatively by several local authorities that split the tax benefits among themselves. These larger zones often include large manufacturing plants, with a greater income stream for the participating authorities and larger-scale employment. The Interior and Industry Ministries plan and zone these regional areas and also typically provide financial incentives to persuade industrial concerns to locate there; today, the ministries have officially zoned 27 regional industrial areas, 22 within the green line and 5 in the West Bank. But of the 22 regional industrial zones within Israel proper, only four include Arab municipalities or regional councils in any capacity; to date, Arabs are full partners in only one such zone - the Bar-Lev zone, located in the Galilee along the road between Acre and Karmiel - and that only since November, 2007. In the past decade, and especially since the riots in October 2000, the government has attempted to effect change. This has been particularly noticeable since the release of the report by the Orr Commission, established to investigate those riots, which stated that "government handling of the Arab sector has been primarily neglectful and discriminatory. The establishment... did not take enough action in order to allocate state resources in an equal manner... or try hard enough to create equality for its Arab citizens or to uproot discriminatory or unjust phenomena." The government has pledged to close the socioeconomic gaps between the Arab and Jewish sectors. In 2003, the government, then headed by Ariel Sharon, began to require that Arab local authorities be included in regional industrial areas on an equal basis with Jewish ones. Initiatives were also undertaken for promoting local industrial areas in Arab municipalities. In 2004, prime minister Ehud Olmert, then minister of Trade and Industry, promised to encourage the creation of industrial zones within Arab localities and his ministry developed a comprehensive plan to encourage regional industrial zones to take on Arab localities as partners. In 2006, it defined all Arab communities as 'class A' development areas, making them eligible for tax benefits equal to those given to Jewish towns in peripheral regions. Extract from an article in Issue 20, January 21, 2008 of The Jerusalem Report. For full story please subscribe to The Jerusalem Report click here to subscribe.