Introducing Arab Industrial Areas

The Jerusalem Report
January 21, 2008
By ZIV HELLMAN

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.

Sikkuy argues that government intervention is not enough and that civil society organizations need to be involved. Sikkuy spearheaded the establishment of the Mayors' Forum for Jewish-Arab Regional Cooperation, with funding by the UJA-Federation of New York, in Wadi Ara. The forum brought together representatives from the Menashe Regional Council, which includes 30 communities north of Hadera, the smaller Jewish town of Katzir-Harish (population 5,000), together with several Arab localities such as Umm al-Fahm, Eiron, Ar'ara and Basma. For the Forum, co-chaired by the mayor of Umm al-Fahm and the mayor of the Menashe Regional Council, advancement of regional and local industrial areas, along with environmental areas, were primary goals.

The Forum has devised in-principle agreements to build two new joint Jewish-Arab regional industrial zones, in addition to the local industrial area now under construction in Umm al-Fahm. One zone is scheduled to be built east of Umm al-Fahm, shared by the Megiddo Regional Council, Umm al-Fahm and Eiron, and the other to the west, jointly run by the Menashe council, Umm al-Fahm, Ar'ara, Katzir, Basma and Kafr Qara. The Ministry of Industry and Trade has earmarked 4 million shekels ($1 million) for planning. The Mayors' Forum has been regarded as so successful by its participants that a similar forum that will include the mayors of Zikhron Ya'akov and the Arab localities of Fureidis and Jisr A-Zarqa, along the Mediterranean coast south of Haifa, is being set up.

In November 2007, Jacob Edri, Minister of Development of the Negev and Galilee, attended the signing ceremony in the Galilee of an agreement between the regional councils of Misgav, Karmiel and Matte Asher and Al-Shagur, which represented the first time that an Arab-sector partner has been added to an existing regional industrial area as a full partner in every respect. The agreement specifies that the three Jewish regional councils that are partners to the Bar-Lev Regional Industrial Area (which covers more than a square kilometer in area and employs 2,000) will immediately accept a fourth equal partner, representing the Arab settlements of the Al- Shagur region, including the Arab city of Majdal Krum with a population of over 30,000.

The Bar-Lev agreement is the only one of its kind to date; persuading administrators of established regional industrial zones to add new partners has proved nearly impossible. "It's not that they oppose adding Arabs... it is that they regard such proposals as telling them to redivide a pie that has already been sliced," says Nili Shachory, an expert on the subject of industrial areas. "Administrators of established industrial zones would react the same way if another Jewish municipality were suggested as a partner - they have for years divided the monetary benefits among themselves, and they won't voluntarily accept receiving a smaller slice of the pie, no matter what the reason."

How were the existing partners in the Bar-Lev Regional Industrial area persuaded to each drop from having a share equal to a third down to only a quarter? "There were exhaustive negotiations involved here," Yishai Sorek, director of a division of regional development in the Ministry of Negev and Galilee Development, tells The Report, "and they involved both carrots and sticks... The carrot was an additional promise of money from our ministry, 5 million shekels ($1.25 m) over and above the 1.5 million offered by the Ministry of Trade and Industry, which sweetened the deal. The stick was the fact that Bar-Lev is oversubscribed, and its directors very much wanted to expand the area by 60 to 70 percent, to meet growing demand and employ up to 5,000 people. The quid pro quo for obtaining zoning approval for expansion was agreeing to take in the Arab localities as full partners."

"There were several elements that came together to make this successful," Sorek continues. "The Ministry for the Development of the Negev and Galilee, created in 2006, set this as a priority, under the guidance first of Shimon Peres as minister and then by his successor, Edri. We were searching for a project that would make a major difference. And the Ministry of Industry and Trade cooperated well with us in the 'matchmaking' process."

Despite the example set by the Bar-Lev industrial area, most experts expect that future success in joint Jewish-Arab industrial zones will mainly be achieved in new 'green field' areas, where established players aren't protecting a status quo. Another site currently under consideration in the Negev is expected to include the Beduin city of Rahat as a partner in an industrial area.

For the Arab sector, inclusion as partners in the industrial areas is expected to improve employment opportunities for Arabs and contribute to decreasing economic gaps between Arab and Jewish municipalities and between Arabs and Jews. According to studies conducted by the National Insurance Institute (Israel's equivalent of the Social Security administration in the United States), the poverty level among Arab families is 54 percent, and Arab families comprise 36 percent of the poor in Israel (based on a poverty line of 5,094 shekels [$1,142] per month for a family of four.

Arab-sector economic growth has been blocked by the lack of opportunities to move into industrial areas. "When I started operations in 1965, it was in my own apartment," says Abed Al- Latif, the principal owner of the Al-Latif Brothers Furniture Company in Umm al-Fahm. "Half of the apartment served as my warehouse and the other half was the work area." As Al-Latif expanded, his brothers and eventually his children joined in the family business. They now employ 120 workers in a five-storey building - but still in a residential area."

He continues, "I have seen furniture factories in Israel, Italy and Germany in industrial areas, and our conditions don't approach theirs. Working in a five-storey residential building makes no sense. We waste a lot of time just moving items from one part of the building to another. I need a 15,000 square meter one-floor working area with modern conveyor belts and convenient truck access. My productivity would double if I had that."

Location of industrial workshops in residential areas also poses substantial health hazards. "We have actually discovered small chemical factories in makeshift workshops under people's homes," says Karaman. "You can imagine the health hazards this state of affairs can pose for the residents of the house and their neighbors - who often are not even aware of it." A recent study by the Technion in Haifa concluded Arab children in Israel are 38% more likely to die in childhood than Jewish children of comparable age, due to the air pollution which stems from the location of industrial plants in residential areas.

Raafat Abu-Shakra, owner of the Abu-Shakra Syrup Company and the Al-Bashra Coffee Company, both in Umm al-Fahm, is well aware of this issue. "For my coffee-making business, the coffee beans need to be chemically processed. But the Al-Bashra plant is located near residential homes, and even though I have installed a large chimney, I live in constant fear that one of the neighbors will sue me. If I could have moved into an industrial zone ten years ago, I would employ three or four times the 50 workers I now have."

Despite the high expectations of industrial areas, Sorek believes that expanding employment opportunities in the Arab sector will require further efforts. He hopes that new industrial concerns in the Bar-Lev area will enable Arab workers to 'move up' the chain to work in food and plastics factories, and perhaps even in high-tech initiatives, and not rely mostly on the carpentry and car repair industries. And an interesting partnership is currently forming between the government and American Jewish organizations, aimed at operational plans for increasing Arab employment opportunities and also providing much-needed extra funding and investment. The Inter- Agency Task Force on Israeli Arab Issues, a coalition of 70 North American Jewish organizations based in New York, will be sending a study mission in early January.

"Many American Jews regard this as a Zionist project," says Dichter, who tells The Report that he is in contact with prominent Jewish businessmen in the U.S., who are "lining up investments" directed specifically to shared Jewish-Arab industrial areas.

But Shachory, who has a doctorate in urban planning from the University of Sussex in the U.K., is concerned that building industrial areas alone and hoping that will spark an increase in employment in the Arab sector - the 'build it and they will come approach' - will not be sufficient.

"First of all, the Arab sector has to overcome old habits," she says. "Moving a small business run from a family home requires relocation costs, taking loans and paying higher taxes. The market alone is not going to accomplish all that is expected of it - there are market failures and the government will need to provide financial incentives. A fortune in government money was handed out over years and years in the Jewish sector for planning, development, inducements to industrialists, and so forth, to bring it to the point where it is today. When there was high unemployment among new immigrants in the 1990s, there was a national plan to get them employed, actually paying employers to hire new immigrants. If the state is serious about raising employment in the Arab sector - and as a sovereign state it owes them as much a responsibility as it does to other citizens - then a national plan, with financing, will be needed."

Karaman, viewing things from his perspective in the Umm al-Fahm municipal building, is optimistic. "We've had very fruitful talks with Jewish local authorities about cooperation in regional industrial areas, and are very satisfied with them," he says. "And we are already overwhelmed with applications by residents who want to move their businesses" to the new industrial area - where construction has yet to begin.

"I can't wait," says Al-Latif. "As soon as the Umm al-Fahm industrial area is completed, I'll move there, straightaway, with no hesitation. I feel like a bridegroom who keeps being told again and again to wait to be with his bride."


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Abstract (Document Summary)

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."

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.

Arab-sector economic growth has been blocked by the lack of opportunities to move into industrial areas. "When I started operations in 1965, it was in my own apartment," says Abed Al- Latif, the principal owner of the Al-Latif Brothers Furniture Company in Umm al-Fahm. "Half of the apartment served as my warehouse and the other half was the work area." As Al-Latif expanded, his brothers and eventually his children joined in the family business. They now employ 120 workers in a five-storey building - but still in a residential area."