Creating wealth in a recession – suggestions for Israel

Creating wealth in a spiralling global recession ain’t just a mathematical conundrum. In the UK, retail chains are folding. In Israel, the high tech sector is feeling the heat – actually the cold. The implosion at Nortel HQ will impact on Israel, employees, clients and suppliers. Microsoft’s retrenchment will not bypass its r&d centre in Israel. Money is tight.

“Building Wealth – Lessons From The British Aristocracy” is tongue-in-cheek, yet fascinating attempt to enable us to learn some lessons from history. The author, Nadav Manham, asks how could so many astute and wealthy people of influence in Nineteenth Century Britan lose so much money and so quickly.

His answer rests with “poverty of imagination”. You need to realise that the fundamentals have changed and act accordingly.

In Israel, we could rest on our laurels. This week, Moody’s did not downgrade Israel’s credit rating. Intel’s Israel plants will not be part of the company’s workforce cutbacks. Teva, the world’s largest manufacturer of generic drugs is recruiting 100 more employees. Etc.

All very encouraging, but not enough. The banks are not lending. The credit crunch has arrved, and thus even the most successful companies will be choked away from customary sources of liquidity.

I myself came across 2 examples of the squeeze this week. On Wednesday, I sat down with a serial entrepreneur, embarking on his next cleantech enterprise. A sold track record – his previous ventures is selling in the tens of millions annually – he now requires new venture capital. The uplift will be absolute to the economy in terms of employment and saved resources. Mega and in a short period of time.  However, currently, the money tap is closed tight.

And I have been approached by an established hightech outfit. With pre-orders on their books, they need a credit line in order to launch a sales campaign of a new product. Their regular bank is not an option at this stage. No lending means less sales, which means less money to pay employees, which……

 “In order to meet the minimum capital adequacy mandated by the Bank of Israel’s Supervisor of Banks Rony Hizkiyahu, the banks need to find an extra NIS 4 billion.”And the finance ministry is worringly quiet on the issue. Why?

Israel has a general election in less than 3 weeks. When a new governement is eventually sworn in, let us hope and pray that it brings with it a monetary policy that reaches out beyond Economic 101, as laid out in 1945.

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