In January 2017, FSG published its 2017 MENA Outlook in which we outlined potential disruptors that can change the region’s trajectory, thereby depressing MNC performance. Included as one of our local disruptors is the eruption of a third Palestinian intifada, or uprising, if Palestinian factions lose confidence in the diplomatic solution through the UN and Israeli actions, encouraged by increased US support, become bolder. The events of the past few weeks in the Palestinian territories and Israel justify close monitoring of this risk and assessment of its impact on markets such as Israel, Lebanon, and Jordan. In terms of economic growth, Israel is an outperformer in the region, while Lebanon is finally seeing positive developments that increase its economic potential. Although these markets are a small portion of the MENA portfolio, they could come under risk from heightened instability in Palestine and Israel. Executives should watch this disruptive event, as it would have implications on MNC’s abilities to hit targets in these markets.
What are the key developments?
Although the Israeli-Palestinian conflict has taken a backseat to other foreign policy issues like North Korea and Iran in the mainstream media, the potential for instability is still stirring domestically in the Palestinian territories and Israel. Since April 17, 2017, nearly 1,500 Palestinian prisoners have been taking part in a hunger strike to demand basic rights, led by the leader of the second intifada, Marwan Barghouti. Ten days into the hunger strike, on April 27, the Palestinian political faction Fatah led a general strike in solidarity with the prisoners in which thousands of businesses in the West Bank shut down; Fatah also threatened a third intifada should one of the prisoners die. The following day was declared the ‘Day of Rage’, where Palestinians demonstrated and clashed with Israeli forces. Since then, the hunger strike is continuing, with prolonged solidarity rallies across the West Bank.
From a foreign policy perspective, US President Trump’s policy toward the Israeli-Palestinian conflict remains unclear. As the peace process remained bleak under Obama, Trump was not expected to usher in a whim of hope either. Prior to his inauguration, Trump expressed his intention to move the US embassy in Israel to Jerusalem, a move that would greatly increase the likelihood of a third intifada, and criticized Obama’s refusal to veto a UN resolution condemning Israeli settlements. Yet a few weeks into his presidency, Trump urged Israeli Prime Minister Netanyahu to “hold back” on settlements, and stressed that he would have to make compromises to reach a peace deal. Trump also met with Palestinian leader, Mahmoud Abbas, on May 3, vowing to broker a peace deal, but offered no new policies on how to do so.
Why is this important for MNCs?
As the undercurrent of Palestinian frustration still flows, MNCs should monitor the risk of a third intifada, especially as the international community’s eyes are focused elsewhere. This disruptor could have serious implications for business strategy and performance in Israel, with spillover risks in Lebanon and Jordan:
- Consumer confidence: Consumer confidence will likely decline, and MNCs are likely to see a shift toward greater in-home consumption. Consumers may become hesitant with purchases, and foot traffic in malls and other retail spaces is likely to slow down
- Government focus on defense spending: Governments are likely to intensify their spending on defense, which could increase opportunities for MNCs selling into this sector. On the other hand, MNCs operating in other sectors could experience alterations or delays in the spending plans of other ministries.
- Weakened tourism: MNCs’ whose products target the tourist segment are likely to see pressure on their targets, as instability will deter tourist visits to Israel, Lebanon, and Jordan
To monitor this risk, these are key dates to watch, though it is important to note that any random event could trigger a third intifada:
- Status of the Palestinian prisoners’ hunger strike, which began on April 17
- Whether violent riots emerge on Nakba day on May 15
- Trump’s visit to Israel, expected at the end of May 2017
- U.S. embassy move to Jerusalem – Trump must decide by June 1, 2017 whether to sign a 6-month waiver forestalling a move of the embassy, which has been signed twice a year by every US president since 1995
- Whether violent riots emerge on Naksa day on June 5
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