FIKRA ACE Accelerator 2023 picks Global Psytech and Pewarisan as winners

Opportunity for cohort to run Proof-of-Concept projects with industry partners
Fikra Ace lays foundation for future innovation & collaboration in Islamic finance

FIKRA ACE, an extension of the Securities Commission Malaysia’s (SC) Islamic Capital Market (ICM) ecosystem efforts since 2021, is dedicated to advancing Islamic fintech through systematic approaches by identifying innovative fintech companies, supporting…Continue Reading

Sidec exposes 5 companies to cutting edge e-commerce with trip to Hangzhou

Participants from Selangor e-Commerce Xccelerator Programme 2023
Exposure inspires a founder to change mindset from local/SEA to global

The Selangor Information Technology and Digital Economy Corporation (Sidec), recently concluded an overseas trip, part of the Selangor E-Commerce Xccelerator Programme 2023 (ECX23). Taking place from 3 to 9 Dec, five companies from the programme took…Continue Reading

Boosting employment growth in India

Over the years, India has undergone notable shifts in its employment dynamics within its vast and diverse economy. The evolving employment landscape is witnessing significant growth potential in numerous sectors.

India’s unemployment situation has shown fluctuations in recent years. This October, the unemployment rate rose to a two-year high of 10.09%. This increase is primarily attributed to rising joblessness in rural areas.

However, it is worth noting that in the period from July 2022 to June 2023, the unemployment rate for individuals aged 15 years and above reached a six-year low of 3.2%, indicating a positive trend in specific periods. The long-term projection suggests a gradual decline, with an expected unemployment rate of around 7.50% in 2024 and 7.70% in 2025.

As India progresses on its economic development journey, the following opportunity sectors are anticipated to play a pivotal role in shaping its employment outlook.

India’s leadership in the Fourth Industrial Revolution (4IR) drives innovation and creates a demand for skilled professionals in software engineering, data science, and digital marketing. The digital economy is poised to generate 60 million to 65 million jobs by 2025, aligning with the global shift toward digitization.

The development of Industry 4.0 also brings about innovative marketing, creating new product opportunities. To meet these evolving needs, individuals must acquire industry-specific technical skills.

Financial sector

The expansion of the financial sector, fueled by increasing demand for banking and insurance services, generates substantial employment opportunities. Financial technology is pivotal in reshaping the industry, leveraging digital banking and technology integration in insurance to make significant contributions.

This transformation involves a digital shift, with non-bank entrepreneurs offering innovative customer-facing and back-office financial technology solutions, presenting both challenges and opportunities for the sector. The growth of fintech firms is expected to continue, presenting new technological opportunities and further shaping the future of financial services.

Health care

The health-care sector is experiencing substantial growth, and the hospital industry is anticipated to reach a value of US$132 billion this year. The key drivers behind this growth include the increasing elderly population, a growing awareness of health-care needs, and the integration of technology, particularly telemedicine, which enhances accessibility to health-care service facilitated by advanced technologies and remote medical services.

Tourism

India’s burgeoning tourism industry is witnessing substantial growth, presenting employment opportunities across diverse sectors. The hospitality services sector, valued at $23.5 billion, is projected to reach $29.61 billion by 2028.

Key areas offering employment prospects include hotel management, responding to the increased demand fueled by the thriving tourism industry, travel agencies playing a pivotal role in tourism, and the culinary arts sector benefiting from the anticipated 23% compound annual growth rate in culinary tourism from 2023 to 2033.

Retail

The retail sector in India is undergoing a substantial transformation, primarily driven by the ascent of e-commerce. E-commerce emerges as a pivotal player in this shift, with expectations of significant market growth.

The retail market is anticipated to reach a value of $2 trillion by 2032. The e-commerce boom is influencing retail dynamics and shaping logistics and supply-chain strategies, necessitating effective navigation of the intricate logistics landscape in the retail business.

Global Capability Centers

India’s Global Capability Centers (GCCs) are integral to the IT-enabled services sector, playing a pivotal role in shaping employment opportunities. Encompassing diverse domains such as customer support, IT consulting, finance, and accounting, these GCCs contribute to a broad employment landscape.

The trend of establishing new GCCs and expanding existing ones is noteworthy, with 18 new GCCs established in the first half of 2023 alone.

Energy sector

India’s advancements in renewable energy, particularly solar and wind power, present promising employment opportunities. The year 2022 witnessed a remarkable surge in renewable-energy jobs in India, totaling almost a million, with hydropower leading at 466,000 jobs and the solar industry alone adding 52,080 jobs, anticipating reaching 1 million jobs by 2030.

Globally, renewable-energy jobs reached 12.7 million in 2022, emphasizing a growth trend despite challenges, with India playing a significant role in contributing to the global clean-energy workforce.

E-shopping

The surge in online shopping drives significant job creation across diverse sectors, notably in logistics and delivery services, where increased demand creates opportunities for drivers, warehouse staff, and logistics professionals.

The thriving e-commerce landscape, particularly in India, also leads to expanded hiring across various professional roles, including marketing, technology, customer service, and operations within e-commerce companies.

MSMEs

Micro, small, and medium-sized enterprises play a crucial role in India’s economy, contributing more than 30% to GDP and providing essential employment. The MSME sector, comprising more than 63 million businesses, is considered the growth engine of India’s economic development, contributing significantly to GDP, exports, and employment generation.

Startups

India’s flourishing startup ecosystem, propelled by government policies and tax incentives, has substantially impacted job creation and global competitiveness.

Key points include the pivotal role of the Startup India initiative in fostering innovation and direct job generation. As the third-largest startup ecosystem globally, boasting about 50,000 startups with consistent annual growth, the sector attracts private capital, drives innovation, and significantly contributes to economic competitiveness.

In conclusion, India’s employment landscape is substantially transforming across various sectors, from digital services to a thriving startup ecosystem. With government initiatives and a dynamic workforce, India is well positioned for diverse and robust employment growth as it continues its vision of becoming the world’s third-largest economy by 2027-28.

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India’s transforming economic landscape

India, boasting robust GDP growth of 7.8% in the first quarter of the 2023-24 fiscal year, positioning it as the fastest-growing nation in the Group of Twenty, is on track to achieve its ambitious US$5 trillion economy target by 2026-27.

At this critical juncture, India is undergoing a significant economic transformation, influenced by a dynamic interplay of factors that reshape both its economic terrain and demographic structure.

Several notable aspects define India’s current economic scenario. Projections from the Economic Survey 2022-23 highlight anticipated GDP growth ranging from 6.0% to 6.8% in fiscal 2023-24, with baseline growth of 6.5% in real terms.

However, inflation remains a persistent concern, prompting recent fiscal and monetary policies, including the central bank’s increase in key interest rates in 2022 to curb inflation. The government has implemented fiscal measures to address economic challenges.

Sectoral opportunities

India’s primary sector presents diverse opportunities to drive economic growth. The agricultural sector, a significant source of employment, not only contributes to poverty reduction but also ensures overall financial stability.

Initiatives like the National Mission for Sustainable Agriculture underscore the importance of technological advancements to make Indian agriculture future-ready, incorporating scientific warehousing practices.

Recognizing the sector’s pivotal role in India’s gross domestic product, recent government measures, including increased investment, long-term growth focus, and policy reforms, aim to enhance its economic contribution.

Global integration with food markets and productivity gains further emerge as avenues for economic development in agriculture. Addressing critical issues such as sustainable practices becomes paramount, given the large population dependent on agriculture for food security.

These opportunities align with the overarching goal of achieving economic growth and self-reliance in the agricultural sector.

While the manufacturing sector holds promise for integration into global value chains (GVCs), it grapples with the task of balancing scale with labor requirements. Navigating this challenge is crucial for India to leverage opportunities and address associated challenges, ensuring sustainable economic growth and increased employment for its growing population.

Opportunities abound for domestic manufacturing to strengthen its position within GVCs, enhancing the scale of its operations. However, the sector is poised to become more capital-intensive, leading to a subsequent reduction in demand for labor. Striking a balance between scaling up operations and managing the surplus labor force will be a critical challenge in the coming decade.

Labor-intensive sub-sectors within manufacturing can play a pivotal role in achieving a net increase in productivity during this transition. India’s export basket, including electronics, automobiles, iron and steel, signals increased manufacturing capacity and competitive refining services.

Labor-intensive export sectors such as toys, textiles, footwear and furniture have significant potential to generate domestic jobs and should be prioritized for growth and development.

The service sector, though employing a smaller percentage of the population compared with East Asian counterparts, consistently contributes to the national gross value added (GVA). The construction industry has shown remarkable promise within the industrial sector, with its workforce steadily expanding over the last two decades.

With 1.6 million employees, the banking sector sees a significant portion (49.1%) working in the public sector. Additionally, the emergence of gig workers, currently constituting 1.5% of the workforce, is expected to increase their contribution to total employment to 4.1% by 2029-30.

Government initiatives

The synergy between government initiatives and policies and a dynamic workforce can foster a conducive environment for job creation in India.

Noteworthy government programs include the Digital India Program, launched in 2015, which seeks to transform the nation into a knowledge economy through initiatives promoting digital literacy, expanding digital infrastructure, and enhancing e-government services.

The Pradhan Mantri Kaushal Vikas Yojana (PMKVY), also initiated in 2015, concentrates on skill development by offering free, short-duration skill training programs and providing monetary incentives upon skill certification.

The Startup India Initiative, launched in 2016, supports startups by simplifying registration, offering tax exemptions, and creating a dedicated fund, generating more than 900,000 jobs.

The Production-Linked Incentive in strategic sectors, launched in 2020, aims to strengthen manufacturing in critical sectors, leading to a substantial increase in foreign direct investment and the potential creation of 6 million jobs in five years.

Last, the Pradhan Mantri Vishwakarma Yojana, launched this September, extends financial assistance and skill-development support to traditional artisans and craftsmen, preserving traditional industries and fostering entrepreneurship.

Finally, as of January this year, India became the world’s most populous nation, surpassing China’s population of 1.417 billion. This demographic shift underscores the importance of harnessing India’s extensive human resources, particularly its young population, to strengthen its economy and establish itself as a global presence.

With more than 52% of its population below the age of 30 and a substantial Internet penetration rate of 43%, India holds significant potential.

Leveraging this demographic dividend through education, skill development, and job creation can boost economic growth, presenting both opportunities and challenges that require effective resource management and provision for the growing workforce.

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Orchard Towers to undergo two-year makeover in a bid to shed shady past

NEW TENANTS MOVE IN

Nightlife outlets in Orchard Towers ceased operations earlier this year after the police stopped granting and renewing their licences.

Numerous bars and massage parlours that once dominated the building’s shopping levels have since moved out.

Replacing them are more family-friendly businesses including furnishing stores, pharmacies and eateries. Tuition centres and dance studios have also registered their interest in available spaces.

The building’s management said it hopes to attract startups and young entrepreneurs to set up shop so as to inject new blood and bring a different crowd to the vicinity.

New tenants said they are attracted to the building’s revitalising efforts and upgrading plans, as well as the affordable rent, which is about 15 per cent lower than its competitors along Orchard Road.

WHAT ARE BUSINESSES SAYING?

One antique shop said its owners spent some time surveying the premises to ensure that the area’s sordid reputation would not affect its business, before moving in three months ago.

Mr How Ta Tuang, an advisor at The Antique Room, said the prime location was a major consideration, and is confident that the building’s rebranding efforts would pay off. 

“In time to come, Orchard Towers is going to turnaround, once they revamp this area. A lot of people will be keen to find out what is happening with this place,” he said.

Another shop specialising in carpets said that since moving in in May this year, it has seen business improving about 10 to 20 per cent each month.

“The number of people that we are getting (has improved) and the type of clients walking in has changed. The profile (of the building) has become a bit higher. All in, there has been improvement,” said Mr Abi Bagheri, managing director of Orientalist Woven Art.

He added that if the branding of the building could be brought up to par with nearby malls, Orchard Towers will be able to attract more tenants and footfall.

“The first look and impression of the building is so important for them (people) to walk in. A bigger and better variety (of shops) in the building will definitely change the atmosphere and the vibe here, and (entice visitors to) spend longer time here,” he said.

SOME ISSUES PERSIST

Despite efforts to clean up Orchard Towers’ image, some problems remain.

The management said it receives a complaint every two or three days on vice activities taking place in areas around the building, including from nearby residents who were allegedly offered sexual services.

While areas outside the building are beyond the management’s jurisdiction, it hopes that the revamp will in time discourage such people from loitering around the vicinity.

Within the building, the management receives up to five public complaints per week on issues such as touting or dubious services. It has sought legal help and is determined to straighten out the mall for good.

“We’re going to reverse that. But we need time, and we hope that the general public can understand and try to help us to bring change to our building,” said Mr Stevenson Goh, the building’s management representative.

CHALLENGES IN REBRANDING EFFORTS

Industry observers said Orchard Towers needs a deeper transformation and refresh more than just its building’s appearance to truly stand out along the stretch of malls.

Some even suggested a name change to help the building shed its boisterous past.

“The very mention of Orchard Towers immediately brings back the imagery of its notorious past. A total change of identity and repositioning exercise (could help),” said Mr Eugene Lim, a key executive officer at real estate agency ERA Singapore.

However, the building’s management said a large number of occupants rejected the move, citing sentimental value in the name.

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Israel future lies in regional economic integration

Hubris begets nemesis, as the ancient Greeks opined. It is thus incredibly telling that in early October, a Jewish-American woman destroyed a statue of a griffin holding a wheel of fate, representing the Roman god Nemesis, on the basis that it was “idolatrous and contrary to the Torah.”

The very next day, Hamas launched its murderous incursion into Israel.

Israelis, having recently basked in a glow of technological prowess and presumed military dominance, have now been painfully reminded that pride cometh before the fall. But it is hard to say that this was unforeseen: Numerous high-level Israel Defense Force generals warned for years that a slaughter was coming.

Yitzhak Brick, the IDF’s former ombudsman, has long argued that the Israeli army “is not ready for war,” declaring as recently as August that “the army is disintegrating. After the volunteering is stopped it will be crushed. Our enemies are waiting for the right moment, they will not wait much longer.” A few months ago, he ominously and specifically predicted that a massacre was practically inevitable.

Brick was not the only general who recognized Israel’s faltering security apparatus, its unhealthy reliance on technology and even a certain arrogance. Yehuda Vach, commander of the IDF’s Officer Training School, noted in 2019 that reliance on a high-tech border fence provided a false sense of security while handing Hamas the initiative.

Even Herzl Halev, the IDF’s former military intelligence director and now commander in chief, warned in 2015 of Israel’s declining technological prowess.

The failure of Israel’s military and intelligence apparatus to foresee this attack is only a symptom of a deeper malaise. The uncomfortable reality is that the essential political, diplomatic, economic, demographic and cultural conditions that enabled the founding and maintenance of the Jewish state have weakened. The country’s future is in doubt, and it is clear that a new national strategy is necessary.

An analysis of the situation leads to a troubling conclusion: For Israel to survive, it must pursue broader economic integration with its neighbors, carefully positioning itself as an essential node in the evolving trade corridors of the twenty-first century.

Three conditions

Israel has, since its inception in 1948, depended upon a trifecta of conditions to secure its survival. These are internal unity, external disunity and Western support.

The first is the most obvious: The bedrock of Israel’s resilience has been its ability to maintain a semblance of domestic demographic cohesion coupled with a united political culture adept at adjusting to the fluid nature of geopolitical threats.

This unity has been pivotal for Israel to leverage its limited resources with maximum efficiency. However, the Israel of today reveals cracks in this foundation.

Demographic shifts, such as the growing numbers and influence of the ultra-Orthodox community, who often eschew secular education and military service (along with being wards of the state), and the increasing assertiveness of Arab-Israeli political groups, have started to strain the fabric of national consensus.

Politically, the country is in a constant state of flux, as seen in the revolving door of general elections, each failing to produce a stable and decisive government. This constant political instability, worsened by the country’s still-ongoing constitutional crisis over reforms to its Basic Law, undermines the nation’s capacity for long-term strategic planning.

A state facing mass protests and even the prospect of civil war cannot survive a dangerous neighborhood, much less fight a multi-front war with full force.

This brings us to the second condition necessary for Israel’s existence: the relative weakness and fragmentation of Israel’s neighboring adversaries. This external disunity has historically provided the country with a buffer of security. Indeed, the Jewish state’s military victories and diplomatic strategies often capitalized on inter-Arab rivalries and the lack of a cohesive threat.

Now, however, we are witnessing a regional realignment. Many Arab states, once embroiled in internal turmoil, are gradually stabilizing and becoming more assertive.

The Abraham Accords, which opened new diplomatic doors for Israel and signified the waning of Arab leaders’ animosity towards Israel, means that Israel now has a significantly reduced ability to play its neighbors against one another, particularly if many of them are united as a bloc in engaging the Jewish state.

Meanwhile, the ascent of Shia Iran, with its nuclear ambitions and proxy networks across Lebanon, Syria, and Yemen, consolidates a new kind of threat that is far more unified in its enmity towards Israel than the fragmented Sunni Arab states of yesteryear.

Third, and most crucially of all, Israel’s qualitative geopolitical and military edge has been underwritten significantly by Western, particularly American, support. The geopolitical dimension is based on diplomatic assistance either at the United Nations or in dealing with Arab states. America’s longstanding relationship with Saudi Arabia, for example, helped provide cover on more than one occasion over the years.

The military dimension is even more important: between 1951 and 2022, Israel received $225.2 billion in U.S. military aid, which is approximately 71 percent of its aid from all sources. Moreover, according to the U.S. Congressional Research Office, since 2000 around 86 percent of annual US aid to the Jewish state has funded military endeavors, funding about 16 percent of the Israel military budget.

This, along with various research & development collaborations, intelligence sharing, economic aid, and other measures has allowed Israel to field a military establishment that is disproportionate to its financial base and available natural resources.

Moreover, this doesn’t include billions in non-governmental economic and political support from Jews in both Europe and the United States, particularly the latter.

However, there are increasing signs that this critical support is no longer a given. The inward-focused populist movements, the frustration with decades of wasteful nation-building engagements and wars abroad, the declining economic conditions – all have sapped Western leaders’ political capital.

Calls for disengagement with the Middle East, including Israel, abound. The United States’ ties with Saudi Arabia have been strained, especially in light of increasing Saudi engagement with China.

Likewise, the once ironclad support for Israel is weakening in the United States and the West. Demographically, younger generations (including Jews) in the United States are less attached to Israel.

Politicization is also having an effect, with significant voices on the left growing increasingly critical of Israeli policies, particularly over the Palestinian issue. Democratic administrations’ engagement with Iran, culminating in the 2015 JCPOA, was perhaps the most apparent manifestation of this, up until October 7.

Regional conditional collapse

Hamas’s attack and the now-ongoing Simchat Torah War have not only brought all three of these weakened conditions to the fore but also illustrate how these conditions seem likely to only worsen.

Domestically, though the conflict has temporarily weakened the Israeli left and united the country in confronting Hamas, underlying tensions and problems persist.

The constitutional crisis, the divide between conservative and liberal Jews, the matter of Arab participation in the political system, and other issues remain. Worse, Hamas’ attack has shattered the sense of peace and stability upon which Israel’s economy depended.

Tech workers and startups, already unnerved by the country’s political and culture wars and besieged by the effects of rising interest rates, are increasingly considering relocation. Economist Adam Tooze lists some of the war’s more onerous effects on the national economy:

The tech lobby in Israel estimates that a tenth of its workforce has been mobilized. Construction is paralyzed by the quarantining of the Palestinian workforce in the West Bank. Consumption of services has collapsed as people stay away from restaurants and public gatherings are limited. Credit card records suggest that private consumption in Israel fell by nearly a third in the days after the war broke out. Spending on leisure and entertainment crashed by 70%. Tourism, a mainstay of the Israeli economy, has come to an abrupt halt. Flights are canceled and shipping cargo diverted. Offshore the Israeli government ordered Chevron to halt production at the Tamar natural gas field, costing Israel $200 million a month in lost revenue.

These economic effects are producing political repercussions that may only further divide the country politically. In other words, Tooze says, the conflict over Gaza’s future is

entangled with inner-Israeli anxieties about the division of Jewish society between the Ultra-orthodox and non-ultra-orthodox Jews…. The war provides the growth-orientated Israeli mainstream with the chance to argue that the funding for ultra-Orthodox educational institutions that imposes no obligation to teach the core curriculum, should be slashed. The ultra-orthodox are of course dramatically underrepresented not only in the workforce but also in the ranks of the IDF. The war thus sharpens the resentment at funding their carve outs.

The world ought to expect further acrimony in Israeli politics over demographic changes, cultural attitudes, and budget allocations, all of which will hamper domestic unity in the face of mounting threats.

Speaking of mounting threats, regionally, the war only highlights Israel’s relative isolation. Shia Iran manifestly has built something akin to an empire in the Middle East via proxy networks and client states — including significant militias and forces in Lebanon, Syria, Iraq, and Yemen. The Houthis in Yemen are particularly active; as of the time of writing, they have launched ballistic missiles at Israel, fired upon U.S. naval vessels, and seized and continue to hold an Israeli-owned cargo ship.

Sunni Arab countries, meanwhile, are more divided in their attitude to the Jewish state. Qatar and Kuwait, for their part, are openly supportive of Hamas and Palestine. Saudi Arabia, the UAE, and Bahrain, meanwhile, would love nothing more than for Hamas — essentially the Palestinian branch of the Muslim Brotherhood — to cease to exist, opening the door for improved ties with Israel and access to valuable Israeli technology and expertise.

Yet support for the Palestinian cause is incredibly strong with these countries’ publics, and thus national governments are obligated to recall ambassadors, issue loud condemnations, and threaten this and that while waiting to see how matters play out in the immediate term. Jordan, Turkey, Algeria, and others have also adopted a similar stance for these reasons.

Finally, Egypt and Jordan are in a challenging position: not only is there significant domestic support for the Palestinian cause, but the two nations’ leaders perceive the current conflict and rhetoric emanating from Jerusalem as setting the stage for the expulsion of Palestinians from Gaza and the West Bank into their territories.

Overall though, Israel faces a much more united neighborhood than in recent years. The much-vaunted Abraham Accords, which laid the foundation for regional integration, are — at the very least — on hold. A recent Chinese-brokered detente between Iran and Saudi Arabia, though more a product of cold calculation rather than an enthusiastic desire for peace and friendship, is nonetheless significant and dampens Israeli options for stoking regional divisions.

At the end of the day, Israel is surrounded by tens, if not hundreds, of millions of Arab Muslims who believe the Jewish state to be a colonizer entity that lacks any legitimate roots in the region. These populations are not going anywhere, and this deeply held, widespread view cannot be addressed by military or otherwise forceful means.

The Western problem

Most visible and perhaps shocking to both Israeli and Western Jews has been the question of support from the West. Polling demonstrates that while support for Israel remains relatively high among older generations, younger generations are far more antipathetic to the Jewish state (if not openly against it). This significant gap in generational attitudes is having enormous consequences. As one Politico headline put it, the political left is tearing itself apart over the matter of Israel.

In the United States in particular, the picture is grim: The Biden administration is facing significant dissent within the US foreign policy apparatus. Rumors abound of tensions within nonprofit groups and think tanks, with younger program assistants, associates, and managers rebelling against organizational leadership.

Things aren’t much better within government institutions, from the State Department to USAID. Even within the White House extraordinary sessions are being held to address the separate concerns of Jewish and Muslim staffers. Of particular concern to Israel’s supporters is the realization that many of the pro-Palestinian staffers will eventually replace their superiors as the latter retire in the coming years, opening the door for a significant reorientation of US foreign policy towards Israel.

Meanwhile, quite literally outside of the building, massive pro-Palestinian rallies are taking place in Washington DC and other American cities, with some protestors yelling “Allahu Ackbar” and calling President Joe Biden “Genocide Joe.”

Biden’s support among Arab Americans and Muslims has cratered, and the country’s National Muslim Democratic Council issued an ultimatum.

More broadly, polling shows significant drops, especially amongst Democrats, who “believe Israel has gone too far in its military action in Gaza, and among voters ages 18 to 34, with a whopping 70% of them disapproving of Biden’s handling of the war. This is visible on college campuses and in the media, particularly a tidal wave of unexpected and often vociferous criticism that has shocked Jews, especially when most of it is coming from liberal friends and colleagues.

Across the Atlantic, Jews in Europe are facing “extraordinary levels” of antisemitism, with targeted attacks surging.

In the Middle East itself, American military bases and outposts have been attacked throughout the region. US diplomats, including Secretary of State Antony Blinken, are receiving cold receptions. The war is doing “profound reputational damage” to America’s reputation in the region, with a leaked diplomatic cable warning that the White House’s support for Israel’s war “is losing us Arab publics for a generation.”

As one unnamed senior official told the Washington Post, “We’re taking on a lot of water on Israel’s behalf.” The war, in short, is having a profoundly negative effect on American diplomatic efforts at a time when policymakers are worried about Iran, Russia, and China making gains in the Middle East. Strategically and diplomatically speaking, this is a disaster for US national interests.

On top of a shift in generational attitudes and damage to diplomatic efforts, with a looming recession, rising inflation, record levels of debt, populist politics oriented toward pulling back from global affairs, multiple other geopolitical challenges (particularly Russia and China), and a visibly weak industrial base, it is clear that Western support for Israel cannot be counted on in perpetuity.

A new direction

Given this gradually worsening situation, the challenge for Israel lies in its ability to forge a new foundational basis that does not depend on the aforementioned and increasingly tenuous three conditions. It must seek innovative paths to national cohesion, regional integration and international alliance-building in an era marked by rapid and unpredictable change.

To a certain extent, Israeli policymakers and strategic planners have long recognized their reliance on Western support and their broader national predicament. If anything, much of Israel’s economic transformation in the past twenty-odd years has been a concerted effort to pivot away from such dependence and towards broader global economic integration.

Israeli economist Arie Krampf has cogently argued that, following the collapse of the peace process in the early 2000s and the resulting Second Intifada, Israel shifted from an economic strategy of consumption-led growth to export-led growth. He writes:

In April 2003, a month after his appointment as minister of finance, Netanyahu announced the Economic Recovery Plan, which included a budget cut, a lowering of government deficits, and severe reductions in social spending and allowances. He also reduced government subsidies to the private sector. For Netanyahu, private sector growth was a means to improve Israel’s economic power in a globalized world…. Privatization and liberalization were processes designed to improve Israel’s capacity to withstand external political pressure and pursue an independent foreign policy…. By late 2003, Israel’s current account had become positive and was growing, indicating that foreign currency was pouring into the economy. This change, which went unnoticed by the Israeli public, was nothing less than a transformative moment, a revolution in Israel’s economic history…. Ben-Gurion’s doctrine assumed dependency on foreign capital. This dependency … was a key element in the national vision and identity: the dependence of the state-building project on foreign assistance. By becoming a “surplus country” … Israel had become less vulnerable than it had been before.

In short, as Adam Tooze summarizes,

Netanyahu’s strategy was to make the modern segment of Israel’s economy so competitive that it would enable not just independence from American (or European) pressure, but turn Israel into a magnet for regional economic interests, above all of the Gulf…. Developing better relations with the growing Arab economies of the region would allow an ‘economic peace’ (one of Netanyahu’s favorite slogans) to be built over the heads of the Palestinians whose resentment and frustration would be contained through a strategy of divide and rule.

Up until the October 7 attacks, this approach appeared to be working. The Abraham Accords established the diplomatic foundations upon which economic integration with Arab states, particularly the Gulf States, could be built.

Israel Katz, Israel’s minister for energy, openly advocated for the country’s transformation into a regional transport hub through the construction of railways, ultimately creating “an Asian-European cargo link as an alternative to the Suez Canal.”

Distant Asian states, particularly China and India, have gotten into the action as well; Beijing has invested around $12.9 billion in Israeli infrastructure projects by 2020, including the Carmel tunnels and the Northern Haifa Bayport Terminal. Many of these projects have laid the foundations for a new logistical connection between the Red and Mediterranean Seas.

More broadly, improving Israeli diplomatic, defense and trade ties with China and India — essential to a long-term strategy of regional trade, along with diversifying away from economic dependency on the West — have yielded substantial results. To quote a recent report:

China’s bilateral trade with Israel grew from US$50 million in 1992 to US$15 billion in 2020, making it Israel’s largest trading partner in Asia and its third largest trading partner in the world after the European Union and the United States. From 2011 to 2021, the share of Israeli exports to Asia going to China rose from 25% to 42%. India’s trade with Israel too has grown, rising from US$200 million in annual trade in 1992 to US$7 billion in 2022, and these figures do not include India’s important but more secretive defense purchases from Israel.

Though the United States has expressed concern over improving relations with China, much of this has been offset by deepening ties with India. Moreover, the G20’s September proposal for an “India – Middle East – Europe Economic Corridor” (IMEC) — effectively a Western-backed effort to support a Belt and Road Initiative alternative — depends greatly upon Israel’s participation. If anything, IMEC could be interpreted as the Netanyahu administration’s crowning economic achievement, securing Israel’s place in the developing multipolar economic order.

Moreover, as a consequence of this effort, Palestinians would not only be diplomatically sidelined but turned into relatively accessible but geopolitically impotent low-cost labor that could support the Israeli economy. It could very well be argued that one of the objectives of Hamas’s assault was to derail Israel’s diplomatic outreach with Saudi Arabia and other Gulf states, thereby ultimately throwing the aforementioned geoeconomic strategy off course. This appears to have succeeded: normalization of ties is on indefinite hold, if not worse.

The Gaza problem and the two options

Israel thus is in a fiendishly complex situation: it cannot advance toward regional integration with its neighbors until the Palestinian issue — or at very very least, the current crisis over Gaza — has been resolved.

There are two ways this could occur.

The first is as simple as it is grim: completing the regional population transfer that was begun in 1948 by expelling Palestinians from Gaza, ultimately resulting in the de facto destruction of Palestine with the eventual annexing of Gaza and, in due time, the West Bank.

The logic here is as simple as it is merciless: Israelis regard the presence of an independent Palestinian entity, potentially liable to turn towards extremism like Hamas, as an existential threat to Israel.

Akin to how Russia invaded Ukraine in full force in 2022 rather than accept a Ukraine headed towards NATO membership, Israeli policymakers might decide that it is better to risk broad international condemnation, sanctions, and perhaps even setting off a regional war — with not just Iran and its proxies, but also potentially given that neighboring Egypt and Jordan — rather than let the situation continue.

Israeli leaders may be calculating that now is perhaps the best and only chance they will have. Future Western assistance will likely not be as strong as it is now. The United States is already redirecting supplies originally meant for Ukraine to Israel, cutting back on the former’s budget in Congress.

Such support cannot be assumed to continue given the myriad of other challenges that Washington faces on the horizon, from economic problems to strategic competition with China. As if to prove this point, on November 28 the Pentagon warned that, due to political and budgetary reasons in Washington, it lacked the funding for a Middle Eastern military build-up.

Meanwhile, in the region itself, support for the Palestinian cause was already relatively weak among the region’s leaders, with no one stepping up to pursue an alternative solution or serious support aside from calls for a return to the two-state peace process. The fact that the Abraham Accords were signed was, in itself, evidence of such.

Moreover, none of the region’s Arab countries particularly would want a war, and many simply cannot afford it. All four of Israel’s primary neighbors, for instance, face severe economic crises and have fragile domestic politics. Egypt and Jordan depend greatly on US military and economic support, which grants Washington significant leverage (especially for Egypt in light of the scandal involving US Senator Bob Menendez). Even regional archnemesis Iran has little appetite for a full war.

And furthermore, Israeli strategists may wager that a fait accompli may not necessarily have permanent repercussions. Diplomatic normalization with the Gulf states could be set back by half a decade or so, for example, but there are still too many political, military, and economic incentives for a permanent cessation of ties. Untapped gas reserves off of Israel’s coast are too tempting a bounty for European states and firms to ignore, especially in the context of rising energy prices, deindustrialization, and expected long-lasting energy sanctions imposed on Russia. The list goes on.

In short, many international leaders may make the cold calculation that the end of Palestinian statehood is a tragedy but ultimately an inevitable one given the changing geopolitical and economic environment. Better to loudly condemn Israel, let it catch diplomatic hell for its actions, but ultimately do little and return to business once the heat wears off.

The second option is the one that has always been on the table: a return to pursuing a two-state solution, likely along the 1967 border lines.

The resulting Palestinian state would be controlled by the Palestinian Authority, replacing Hamas in Gaza, and supported by the Arab League. Security for the new state, along with assurances, could be provided in the medium term by peacekeepers from Arab League nations, led by Jordan and Egypt.

There are, unfortunately, enormous hurdles to this approach that make it impossible in the immediate term and fiendishly difficult in the short, medium, and long term: the continued existence of Hamas, which will never recognize Israel; the transfer of Gaza back to the control of the Palestinian Authority; the Palestinian Authority itself, as it is even less popular than Hamas among Palestinians and widely regarded as an ineffective political authority (ruled by a leader whose time has come and gone); the enormous economic costs associated creating a Palestinian state and rebuilding Gaza, a part of which Israel would presumably be obligated to cover; the presence of Israeli settlements within the West Bank; and more.

But far and away the largest issue is that, following the October 7 attacks, a large number of Israelis (and some Western Jews) will refuse to ever countenance the existence of a Palestinian state. Given Israeli operations in Gaza right now, it is quite likely that many Palestinians feel the same finality about Israel. Frankly speaking, there is a reason why polling for a two-state solution was particularly poor amongst both Israelis and Palestinians even before the recent conflict.

The final chance?

In an early November interview with ABC News, Prime Minister Netanyahu declared that Israeli forces would handle security in the Gaza Strip for an “indefinite” period. His foreign minister, Eli Cohen, further indicated that Israel “has no desire to impose a civilian administration on Gaza after the war is over” and will seek to “turn over responsibility for governing the Palestinian enclave to an international coalition, including the US, the European Union and Muslim majority countries, or to local political leaders in Gaza.”

In effect, this may be the final chance for Palestinians to pursue a two-state solution. Hamas has always been the primary uncontrollable factor in negotiations. To quote a former US envoy to the Middle East, “Talk of a Marshall Plan for Gaza has never been credible because international donors and investors know that whatever is built is likely to be destroyed the next time Hamas decides to trigger a new conflict with the Israelis.”

Though the group’s removal won’t eliminate popular resistance attitudes toward Israel, it will create a brief window in which negotiations could be pursued.

Moreover, the Netanyahu government (or at least many of its cabinet ministers) may soon leave the stage. Government mismanagement over how the October 7 attacks were handled has sparked significant political outrage, meaning that Netanyahu — assuming he survives politically — will need a new coalition government that includes more progressive, left-wing parties and partners. These tend to be far more amendable to a two-state solution, negotiating with the Palestinian Authority, and restraining (if not pulling back) Israeli settlers in the West Bank.

Ultimately, it still may be possible to fulfill the hope of the late Palestinian leader Yasser Arafat: to turn the Gaza Strip into the Singapore of the Middle East and the crown jewel of the Palestinian state, a mirror version of Israel’s own Tel Aviv. The fulfillment of this vision could finally put the Palestinian issue to bed – at least for a sufficiently long period of time for Israel to integrate into the region’s economy and security architecture, along with addressing its demographic challenges.

Should this final effort at peace fail, however, then it is likely that Jerusalem will opt to finish what was begun in 1948. We should hope it need not come to that.

Carlos Roa is a Visiting Fellow at the Danube Institute. He is the former executive editor of The National Interest and remains a contributing editor of that publication. Follow him on Twitter (X) @CarlosRoa92.

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