Paulus VI is the single, narrow artery that snakes through the old city of Nazareth, choked with a seemingly endless line of vehicles. On either side of the thoroughfare, there is dust and noise and vendors chatting at high decibel in Arabic in relentless heat. For the last two years, a sign above a modern sand-colored building spells out in English, “Microsoft.” The new R&D headquarters of the American giant is just one of the several tech-related initiatives to open in the city in recent years.

Known as Israel’s Arab capital, Nazareth is home to 75,000 residents, most of whom are Muslims. Two years into the implementation of the Israeli government’s $3.85 billion plan for the “social development of Israel’s Arab population,” Nazareth is now pushing to take its place alongside emerging competition from the United Arab Emirates and Jordan to become a hub of Middle Eastern tech entrepreneurship.

The country’s 1.8 million Palestinian citizens of Israel—commonly known as Arab Israelis—now account for 20 percent of the country’s total population. The education and employment rates in their communities are lower than for the rest of the population. Because they don’t serve in the military, which is mandatory for most other Israeli citizens, leaves them out of the country’s most important networking and workforce training opportunity. As the Jewish state has laid a deserved claim to the mantle of “startup nation,” this group of citizens now seeks a place in the country’s ongoing tech boom.

They are men—and a few women—like Tarek Issa, who, in a coworking space located minutes away from the harbor of Haifa, tests the latest version of his app, “Lofic,” which helps music producers from around the world connect and collaborate remotely. Or Malik Egbarya, who, at age 20, on a particularly hot night at the Samsung headquarters in the Sarona neighborhood in Tel Aviv, presented his idea for a smart ambulance stretcher. Dunya Makhlouf arrives by car to her small marketing firm from her home in Acre, 25 miles away. Up front, between the two of us, is a copy of Al Moftah, the book she wrote and published in 2016 to inspire working Arab women. Its title translates as “The Key.” Just a mile and a half to the southeast, in the industrial part of the city, off of Highway 75, is Galil Software, where Dror Gonen, an Israeli Jew from the Tel Aviv suburb of Kiryat Ono is closing a deal with an American company. He employs about 200 developers, most of them Arab engineers. Some Arab developers work for or own “ghost” companies that mask their presence in Israel so that they can target the Arab market outside the country with less chance of discrimination against them.

Dunya Makhlouf. (Collage: Tablet Magazine; photo courtesy the author)

Over the last few years, the growth in the technological sector for Israel’s Arab population seems—at least to some visionary entrepreneurs, both local Arabs and local Jews—to hold promise for narrowing the enormous gap between the two communities. I found my way to 87 Paulus VI Street, a tall stone building that houses the office of Fadi Swidan on its sixth floor, overlooking the Basilica of the Annunciation. Swidan, at 47, is among Nazareth’s most important entrepreneurship advocates, the name most often summoned whenever the subject of the Arab tech startups comes up. Next to his computer mouse, he keeps a packet of cigarettes.

Swidan offered me a cup of Arabic coffee and lit a cigarette. Over the last decade, he has helped launch the Nazareth Business Incubator and Accelerator Center, which has provided myriad opportunities for Arab youth. Swidan was among the first Israelis to envision the possibility of narrowing the gap between Israel’s Arabs and Jews by creating tech-sector opportunity, while realizing that some aspects of traditional Arab culture could be antithetical to a startup mentality. For instance, he said, Arabs have a strong preference for family business over partnerships that grow from talent first and they fear failure, which is a given in the startup ecosystem.

Another impediment is finding Arab investors. “They thought that startups were too risky,” he said of  the wealthiest prospects. Most prefer real estate. In the larger Arab society outside Israel, he said, in places like Amman and Dubai, most investors in tech tend to favor projects that require little research and development.

Funding for the center comes from both the Ministry of Economy and from the Authority for the Economic Development of the Arab, Druze and Circassian Sectors, also known as the Ministry of Equality, which includes the annual acceleration program for startups, Hybrid, as one of its main assets. Swidan created Hybrid with the support of an NGO started in 2016 by alumni of the army’s elite intelligence unit, known as the 8200 Alumni Program. The NGO matches all the funds that the Nazareth center receives from the government.

“The startups that work best are those which have both Arab and Jewish co-founders,” Swidan said. “The Arab founder usually has the tech expertise, and the Jewish founder usually has the business expertise.” Most of Hybrid’s companies, in fact, have founders of both backgrounds—and that is also because the Israeli government awards special grants to such collaborations. Some of the Arab startup companies Swidan has worked with are Optima, Mobility Insight, and Mindolife.

Swidan’s long experience has taught him that the proximity of Nazareth to a tech giant like Tel Aviv makes it unlikely that it will ever become its own tech hub. His goal, instead, is to make Tel Aviv aware of the existence of this hive of talented coders and smart entrepreneurs only 60 miles north.

***

Down the road in the industrial area, Dror Gonen was on the phone in his office at Galil Software, speaking in Hebrew, interspersed with some of the Arabic words he has learned since joining the company in 2012 at age 44. He was smiling broadly. “Zeh meuleh, This is great,” he kept saying in Hebrew. He had just finalized Galil’s first international deal with a major U.S.-based software company, the name of which he could not publicly disclose. Behind him, on the wall, a sign read: “Building careers in hi-tech.”

Gonen commutes to work in Nazareth every day. These past six years as CEO of Galil Software has been the first experience of this Israeli Jew as part of a minority in his own country. The attraction was the company’s multiculturalism, as well as its goal of employing Arab computer engineers in the north of Israel.

A group of 20 investors, only one of whom was an Arab, established Galil four years before Gonen was invited to lead the firm. “They thought it’s no good for anyone if Arab children can’t dream the way Jewish kids can dream,” said Gonen. Plus, he said, competition in tech in Israel should not be between local Arabs and Jews. “It should be between Israel and its competitors in the Silicon Valley, the Boston area and the growing centers in India and China,” he said.

Investors saw Nazareth as the most logical site for the firm, not only because of its large Arab population but because it has the highest education rate among the country’s Arab-populated cities. “When I joined, there were 400 Arabs out of 100,000 software engineers in the tech industry,” he said. Since Galil was founded, he said, those numbers have changed dramatically. Data released by the Technion indicated that between 2001 and 2014, the number of undergraduate students who were Arabs nearly doubled, from 11 percent to 21 percent. Gonen said that percentage is now actually higher than the percentage of Arab citizens in Israel.

Galil Software has experienced similarly huge growth. It now employs 180 engineers who develop softwares for more than 30 customers, including SanDisk, Radware, and Wix. It has specialized in some niche markets, such as quality assurance automation and DevOps, which is the merging of software development and operation.

“When you penetrate the tech industry, you need to have contacts,” Gonen explained. “If you live in the periphery and you haven’t been in the army, you have less contacts.” Galil provided the opportunity that many Arab developers were seeking: to be able to work in their field without relocating to the center of the country, the merkaz, namely the Tel Aviv area, or having to make the long, slow commute.

A perfect example is Esam Jafari, whose office is a few doors down the hall from Gonen’s. Jafari came to study software engineering at Tel Aviv University from his home in Shefar’am, an Arab town about a half hour by car from Nazareth. He graduated in 2007 with an A+ average that did not help him land a job immediately.

“They don’t give you the reason why you don’t get accepted,” he said. Every lost opportunity left him more and more convinced that his background was the problem. “It’s hard for Arab engineers to enter Jewish companies,” was how he put it, declining to call what he experienced racism. “It’s not,” he said. “It’s easier to work with people who know your culture.” Some industry leaders, including Gonen, attribute the response to what they call “natural discrimination.” But that doesn’t make it less discriminatory.

Jafari’s break came by chance, though it took four years to materialize into a career path. Partner, one of Tel Aviv’s largest communications companies, had hired him as a call representative back in 2005, while he was a still a student. His first application to work for the company’s QA, or quality-assurance, department, was unsuccessful. But after 18 months in the call center, a job in QA came through. “I entered from the back door,” he said.

A year later, his boss promoted him to team leader and seemed to take pleasure in the fact that he had done so. In the dining hall, after Jafari’s promotion, he and his boss ran into the human resources officer who had initially rejected his application to QA. “Do you remember this guy?” his boss asked the woman. “You didn’t accept him, and now he’s a team leader here.”

“I didn’t say anything,” Jafari recalled. “It was so satisfying.”

Less propitious were the firm’s manpower cuts in November of 2013. Partner laid off Jafari and 11 of his teammates. That made Jafari decide to return to the north, where Galil hired him for its QA department. These past four years at Galil have given him the opportunity to work with plenty of Arab developers and other colleagues.

“Lately I’ve had many job opportunities,” he said. “Friends that worked with me called me and told me, ‘Come back to Tel Aviv.’ I choose not. The salaries are higher in Tel Aviv, but I’m satisfied here, and my family is here.”

Jafari thinks that the increasing demand for developers in Tel Aviv has significantly improved the chances for Israeli Arabs to find opportunity. “In Israel there is a shortage of engineers, so companies are employing Arab workers,” he said. “And we are proving ourselves.”

Gonen confirmed Jafari’s contention that opportunities for Arab developers are growing. He said that some of his prospective employees end up choosing a different job, saying, “Sorry, I got a better offer.” That’s a victory from a social perspective, because it means Arabs can find jobs elsewhere. But it’s a major loss on the business side. As a consequence, Gonen calls Galil’s business model “self-destructive”: Now that the tech scene in Israel has gotten acquainted with its Arab engineers, more companies in the center of the country are less reluctant to recruit them directly.

What happens today to a young Palestinian citizen of Israel who majors in computer engineering? Is he really going to find a job that easily? Speaking firmly, Gonen replied: “If he doesn’t find a job, in my estimation, he wouldn’t find a job also if he were a Jew.”

***

To get to Jerusalem from Nazareth took me a couple of bus rides and a half hour wait under the sun on the side of what seemed to be a highway to nowhere. In Jerusalem, I met with Ron Gerliz, who is the co-executive director of Sikkuy, a Jerusalem-based NGO that promotes civic equality between Arab Palestinian and Jewish citizens. He did not mince words. “The resources of the State of Israel,” he said, “are allocated on an unequal basis.”

“Arab citizens are 20 percent of the population in Israel,” he went on. “If you look at the education budget, welfare budget, infrastructure budget, tourism budget—you name it—you’d expect that Arab citizens get at least 20 percent of that. But they get less.” Gerliz suggested given the many years of discrimination, they should receive even more than the proportional 20 percent.

Malik Egbarya. (Collage: Tablet Magazine; photo courtesy the author)

It’s common for Israeli state officials who want to tout the country’s pluralism and openness, to list the most prominent Arab Israeli judges, athletes, and Eurovision contestants. But the truth is that Israel was not created to be a multireligious state. It was created to be one of two states, as envisioned in the United Nations’ Partition Plan. The Law of Return, for instance, allows Jews from all over the world to easily immigrate to Israel but excludes everyone else. Thus, those who are not Jewish—such as Palestinians with an Israeli ID, Eritrean immigrants, or European Catholics studying at a private university in Herzliya—will always be considered “other.”

Gerliz said that since the state’s founding in 1948, “700 communities, cities, kibbutzim and moshavim were established for Jews. Not a single one for the Arabs.” And yet, he said, both populations have increased by 10 times in the period since.

One of the reasons why the economic gap between Jews and Arabs in Israel is so large is that the percentage of Arab youth enrolled in universities (18.7 percent) is less than half of the percentage of their Jewish peers (37.9 percent), as data from a report published in 2016 by the Adva Center indicate. The same report also indicated that the employment rate in Nazareth is significantly lower than the rate in the adjacent Jewish town of Nazareth Illit; and that the average Arab worker makes about half the salary of the average Jewish Ashkenazi worker in Israel.

A succession of government administrations have instituted development plans for the minority populations, starting in the 1990s with Prime Minister Yitzhak Rabin. The government of Ehud Barak followed in the year 2000 with an 8 billion shekel plan that, Gerliz said, was only half-spent. Seven years later, Ehud Olmert’s administration established the Authority for the Economic Development of the Arab, Druze and Circassian Sectors with the express purpose of maximizing the economic potential of these populations “by encouraging the economic and business activity … and integrating them into the national economy.” The director of this office is Iman Saif. Almost all of the people working for this authority are not Jewish.

Each of the five-year plans undertaken during the nine years Benjamin Netanyahu has been in power, has been almost fully implemented, and the most recent of the two plans, known as Resoluton 922, has been a game changer. Instead of specifying the amount of money the government intends to allocate for its minority groups, it earmarks 20 percent of each ministry’s budget for these populations. Beginning in 2016, the plan changed about 15 of the government’s budget-allocation mechanisms, ranging from education, to employment, transportation, and infrastructure, according to a statement released by the Inter-Agency Task Force, a coalition of North American Jewish organizations committed to narrowing the gap between Jews and Arabs in Israel.

So far, Gerliz said, the plan is working. In all, 2.4 billion shekels ($680 million) were allocated to the Arab population in this way in 2016, including increased funding for the 10 Arab business advancement centers, including Fadi Swidan’s in Nazareth, among many others known by the Hebrew acronym Maof, which also means “takeoff.” Among 922’s incentives is a government pledge to fund thirty months of salaries for new Arab employees if the company hires five or more workers from this population, Over five years, there will be new direct government investment of an estimated 90 million shekels (about $25.6 million) in small and medium-sized Arab businesses.

Israel’s detractors may dismiss the characterization of the country as  “startup nation” as no more than hasbara, Hebrew for state-sponsored propaganda, but in 2017, “exits,” or sales of small Israeli startups to larger firms—often abroad—totaled $7.44 billion. The average exit price was $106 million. While success stories of such magnitude among Arab entrepreneurs in Israel are yet to come, Tarek Issa’s small Haifa company may be on the cusp of reward. Issa is a local 33-year-old software engineer whose first startup, Lofic, is a mobile platform for music producers to record and collaborate remotely on new tracks. Lofic launched in 2016 and has grown quickly and has attracted attention for partnerships from major brands.

Issa and his team of six developers, a mix of Arabs, Jews, and foreigners, meet in a coworking space established by the municipality of Haifa for early stage startup companies. The office is downtown, by the sea, where large, colorless, concrete buildings leave just enough room for busy streets to intrude between them.

As a boy, Issa installed a camera by the window in his bedroom and developed software that would beep every time someone tried to get inside. It worked a little too well—in fact, it would beep for every passing stray cat. After graduating high school, he studied computer engineering at ORT Braude College, in Karmiel, and later got a job at Philips Healthcare. There, he turned heads when he autonomously decided to develop software that could test for bugs in the company’s products.

Music was always his side passion, until he left Philips to create Lofic. The startup was accepted into Coca-Cola’s six-month commercialization program, Bridge, in Tel Aviv. Issa’s plan was to “democratize music production,” he said, developing a smartphone app that would connect musicians from anywhere and automatically enhance the audio quality of their recordings through an algorithm.

At first, it was not easy to convince investors to fund his idea. Palestinian entrepreneurs in Israel are in a “lose-lose situation,” he said, confirming what Fadi Swidan had said. “There are no Arab investors in Israel, and the investors from the Arab world don’t want to invest in Israeli companies.” Ultimately, the funding came through the government’s Innovation Authority in the Ministry of Economy. “It’s a little easier for Arabs to get the support [of the Innovation Authority],” he continued. “They understand Arabs in Israel are less powerful, so they want to help.”

Issa is now preparing for a new round of fundraising, as he needs $2 million to continue developing the app.

In early 2018, he and his team made significant advancements in their search for an algorithm that reconstructs the data that gets lost in recordings made on mobile devices. “If you record yourself while playing guitar, the mic won’t capture all the frequencies of the guitar,” he explained. Lofic is building a machine that can recognize the quality of sound and enhance it when needed. “It’s unique,” he said. “It will be a powerful patent.”

Tarek Issa. (Collage: Tablet Magazine; photo courtesy the author)

A few meters away from Tarek Issa, another developer, 29-year-old Nizar Ashkar, was working on his own software. He lives and works in Israel, but his startup—he asked that the name not be published—is registered in the country of his business partner. Because Ashkar feels discriminated in Israel, he does not want to contribute to the country’s economy.

“Israel calls us Arabs,” he said. “We are Palestinians. I come from a village that was destroyed in 1951. We consider ourselves refugees. They say this state is Jewish and democratic. This is a state that is Jewish for the Arabs and democratic for the Jews.”

Ashkar dismissed the government’s attempts to change the conditions of Palestinians with Israeli citizenship. “The salaries are low; our counterparts in Tel Aviv make more than double the money we make. We are ‘class B’ citizens. Even in the Jewish communities you see that Jews from Arab countries are ‘class B.’ Look at the Ethiopians. This country is built on gaps.”

Ashkar has been interested in software development since he was a child; his father also worked in technology, but on the business side. He pursued his degree at the Technion, Israel’s premier institute of technology. This is not his first venture; he previously owned a different startup, which he said “didn’t go well.”

Few Palestinians working in the tech industry in Israel spoke as openly as Ashkar did. Few are willing to discuss politics. One of them, who asked not to be named, was critical of his Arab peers. “Before you jump to conclusions, ask yourself: Have I reached the maximum point I can reach?” he said.

He is in his late 20s, working for a large American tech company in the south of Israel while pursuing a doctorate in software engineering. “I believe that in Israel there are equal opportunities,” he said, especially in the tech industry. “People are not aware of the opportunities we have available. I don’t think everyone is willing to sacrifice.”

The increase in the number of Arab engineers over the 10 years he has spent as a developer has been notable, he said, and might have been even greater if Arab engineers were more willing to leave the north and work in Tel Aviv. But leaving the north means leaving one’s community and venturing into a predominantly Jewish area; not everyone is willing to make that sacrifice for their career.

***

Eitan Sella, an alumnus of the Israeli army’s elite unit 8200 is a co-founder of Hybrid, the startup accelerator program launched by the Nazareth business center alongside the 8200 alumni NGO. He never attended university. After graduating from high school, he was accepted into the exclusive intelligence unit of the military. His army service gave him the equivalent of three years of on-the-job professional experience in the field of information technology. So, when he completed his service, he went straight into his first job. After almost a decade of navigating Tel Aviv’s tech scene, he changed direction and helped to found Hybrid to serve the country’s Arab, Druze, and Bedouin entrepreneurs. For seven months each year, Hybrid trains about 10 companies or groups of select entrepreneurs in developing sustainable business models, introduces program participants to investors, and offers business advice.

Military service is not required of most of Israel’s minority populations, and indeed most would elect to be excused. Nonetheless, the exclusion also removes them from the country’s greatest networking and workforce training opportunity. “It’s not a structural disadvantage, but rather the selection bias that funders have,” Sella said. “They’re more prone to invest in people who fit certain profiles. I guess that’s true for other countries, too. It’s not a problem that’s unique to Israel. What’s unique to Israel is that the selection bias [revolves] around the military service.” As in his own case, he said, experience in the military often determines the first job one lands.

He acknowledges the cultural limitations, too. “I can imagine how difficult it would be for an Arab to move to a suburb of Tel Aviv,” he said. Besides the fact that Tel Aviv is one of the most expensive cities in the world, there are the sociopolitical issues to consider. “Likewise, if I wanted to move to Nazareth, people would find it weird.”

Sella’s solution was to find the best ideas and entrepreneurs each year and take them to Tel Aviv. “There is no reason for an investor to go to Nazareth,” he said. “Everyone’s here already.” In 2017, Hybrid invested particularly in scientific-based, medical-related projects, such as Magical Snoreless, a startup company that has developed a wearable device that vibrates at the sound of a snore. “There is a huge number of medical doctors, pharmacists, researchers in the Arab community. We see a lot of potential there.”

Dunya Makhlouf is one of the few Arab women tech entrepreneurs in Israel. Not only has she started a family, but she has founded her own marketing-consulting company, which is the subject of “The Key,” which she self-published. “Success requires lots of confidence,” she said. She wrote it hoping to empower a new generation of women Arab entrepreneurs.

“As an Arab, Muslim, Palestinian woman in Israel I’m at many peripheries of society. Arab Israelis need to take the lead for a better future,” she said. Makhlouf was born in Haifa and attended a Christian nuns’ day school in Nazareth. She studied French literature at Haifa University and completed her undergraduate degree in France. For a while, she thought of staying abroad; but she wanted to be closer to her family, so she returned to Israel and taught French.

Teaching paid too poorly for Makhlouf’s ambition, so she pursued a master’s degree in business consulting at Jezreel Valley College, near Afula.

“I didn’t find a good job. So I decided to start my own business, independently,” said Makhlouf. “I published videos with tips and advice [in Arabic] on how to be successful in the workplace.” After reaching thousands of views, she started getting calls from companies. That led her to start 2Lead, her small, Nazareth-based marketing firm. Today, she also holds workshops for Arab youth and gives book talks in Israel and abroad, hoping to inspire Arab women to pursue careers.

She also hopes for change in Israeli society and believes the solution lies in developing economic power. “We can change the future if we have the money,” she said. “I contribute by empowering new leaders in my society.”

***

This article is part of a Tablet series on the consequences of The Six-Day War, which began on June 5, 1967.





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