Is Israel turning into a true economic power? Israel’s Geoeconomic status going into its 74th Birthday.
03.05.2022 | Yishai Gelb
Against much disbelief, the state of Israel is turning 74 years old in one of the roughest regions in the world. Yet, today, Israel’s geo-economic powers are more significant than ever and are affecting its ability to take part in shaping the Middle East.
A country can achieve its goals with military or economic capabilities. Israel's commercial financial position in the Middle East is rising thanks to the rise of the population combined with growth at the technological level and per capita income. As it grows in its population size and economy, Israel will be able to achieve its goals and impose arrangements in the Middle East.
Countries with large economies, natural resources, and extensive industry can impact their region and the world. They can cause dependency of other countries on their industrial production chain by providing resources, loans, or tourism insurance. A country cannot survive without a modern economy. A country that fails to participate in the fourth industrial revolution will lose its objective power. Unlike a regular economy, which aims to find customers and generate profits, the goal is to leverage pressure on rivals and friends. That is, instead of bullets, loans. The purchase of bonds from another country instead of deploying missile batteries. Funding and investing in firms instead of paying for proxy wars.
This economic game consists of seven pressure points. Some require a large economy, and some do not. They are:
Trade and investment policy
Dependency on natural resources and energy
Trade and Investment: The more a country can trade with other countries, the more it has to offer, and the larger its consumer market, thus a robust economy. Israel is the 33rd largest economy globally, with the 100th population size. That is because of the young and growing population and a relatively high income from the export of high-tech services. Israel exports about 30 billion USD worth of goods and services and imports around the same amount. In comparison to the Middle East, Israel is the 5th Largest economy, with the 2nd largest GDP. Israel is a dominant economy in the Middle East, but not a large economy by global standards.
Foreign Investments: A powerful tool used in the capitalist world is the ability of a country to invest in foreign countries or influence their institutions and gain leverage and geopolitical power. Countries that import natural resources tend to have large sums or reserve capital to invest. For example, Norway has a wealth fund of over $1.4 trillion thanks to oil exports. And Saudi Arabia also invests in cultural institutions and companies in the west to influence policymaking. Unfortunately, Israel does not have a sovereign wealth fund. However, there are plans to open such a fund from the revenue gained from the gas sails.
Humanitarian Aid: Humanitarian aid is a tool that wealthy counties have at their disposal. By aiding countries in need of capital, the government can give aid in return for policy change. The USA is a leading example, with aid spread all over the globe. Israel gives less than 1000th of its GDP as aid, mostly in training and infrastructure, and less in cash.
Monetary control: The widespread use of a country's currency is an accurate measure of economic supremacy. The government in which many other countries use its currency for trade enjoys the ability to take out easy loans, spend exorbitant amounts on consumption, and control world markets. Today, 60% of all trade is done with the USD, and the Israeli Shekel is used only within the State of Israel, Gaza, and the Palestinian Authority. Israel does have monetary control over the Gaza Strip and the West Bank and can potentially have monetary control over Jordan, but not much more than that.
Dependency on Natural resources and Energy: The more a country is dependent on natural resources, particularly energy, the more vulnerable it is. There are no countries that are entirely energy and resource independent. The USA is the closest to being independent. Israel imports most of its calories, oil, and most of its raw natural materials. Israel recently discovered natural gas on its shores, which improves its energy dependency. Nevertheless, Israel is far from being energy and resource independent.
Cyber capabilities: To participate in the 4th industrial revolution, a country must have a robust cyberinfrastructure. The 4th industrial revolution includes the Internet of things, Artificial intelligence, and automation. Israel is at the forefront of this revolution and is building a solid infrastructure capable of running intensive and demanding networks.
Imposing Sanctions: Very few countries have the power and privilege to impose sanctions on other countries. It requires control over currency, trade, a strong military, a large consumer market, and strong diplomatic and geopolitical partnerships. The USA, the EU, and China are the only countries with such capabilities, with the USA being the only true power to impose impactful sanctions. Israel is far from such capabilities.
In conclusion, Israel is still a small economy from a global perspective; however, Israel is a growing power in its region. Such economic capabilities grant it the position to lead coalitions and lead economic initiatives. The Middle East is not a region known for its warm cooperation. However, there is a place for coalition building. And Israel's Geoeconomic status makes it a leading player in any coalition it is a part of.
The next report will cover Israels' economic opportunities in the Middle East.