Israeli economy & government intervention

However you twist the figures, the speed of the Israeli economic recovery is slowing down. The latest report from the Central Bureau of Statistics argues that: –

Economic indicators for the April- June period point to a continued slowdown in the pace of growth in imports of raw materials, trade and services revenue, industrial production and credit-card purchases….

Over the past 6 months, annualised GDP growth has dipped off by about 1.0 % to around 3.5% . On the other hand, the predictions for 2011 remain strong.

Citigroup expects the economy to grow 3.2% in 2010 and 4.2% in 2011. The Bank of Israel forecast is for the economy to grow 3.7% in 2010 and 4.0% in 2011.

Stanley Fischer, governor of the Bank of Israel, has pointed out several times that Israel was fortunate during the initial stages of the credit crisis. As the country was going through a general election, central government was weak. Nobody in authority was around to push through a large fiscal package. Debt did not go through the roof, as in the UK and elsewhere.

Yet last week,  a report was issued in America, which details why the very opposite was true for Washington.

Alan Blinder, a professor at Princeton, and Mark Zandi of Moody’s Economics (and one of the chief economic advisors to the McCain Campaign)….. argue that without any of the responses, 2010 GDP would have been 11.5% lower than it is likely to turn out, payroll employment would have been 8.5 million lower and we would now be facing outright deflation rather than just being at risk of falling into it, as we are now.

True, the American and Israeli economies faced very different challenges 2 years ago. For a start, Israel’s banks were sound.

However, there may be a need to move the local debate along. Today, Israel’s high tech sector needs help to reposition itself. The ultra orthodox and minority communities are not engaged in the labour force as the rest of society is. Infrastructure in the north and south remains weaker compared to the centre of the country. Primary and secondary education standards are continuing to slide.

None of the these are impossible issues to resolve. All require financial direction (and leadership) from the centre. Is it time to relax the purse strings?

Setting up your business – learning from a bracelet

My prospective client asked me, Mr Business Coach, how I could help him set up his new operation. After my reply, he told me that he already knew all that. So I asked him what he wanted.

Silence! In one breath, he realised that he did not know and he seemed reluctant to let others try on his behalf.

I have said it before and I will say it again. Planning with a defined, logical vision is essential, before you kick off.

Look at the story of Silly Bandz – US$5 packets of silicone bracelets, making a fortune for the owners.  Robert Croak, the founder, clearly understood from the beginning what needed to be done. He hit on an idea, realised how conventional marketing would take too long to work, and thus used a social media campaign. His rapid success has been recorded on Bloomberg, CNN et al.

And when the initial effect wears off and others begin to copy him?

We’ve been planning some new products that will make Silly Bandz a household name for the next 5 to 10 years.

Know your direction. Know your numbers. Ask yourself some hard questions to confirm that everything is reasonable. And go for it.

Has Hamas given Israel’s local economy a boost?

The fall out from the Turkish flotilla, originally sent to bolster the Hamas regime in Gaza, continues to reverberate in the commercial world.

There is no doubting it. Until June 2010, bilateral Turkish-Israel trade was continuing to reach new heights – over US$1.5 billion annually. And the defense sector was one of the main beneficiaries.

Today, Israeli and UN led commissions of inquiry fill up the news print. On the ground, 10s of thousands of Israeli tourists have abandoned Antalya and other Turkish resorts in droves – replacing them with the hotspots of Crete, Cyprus and Eilat. Several Israeli supermarket chains have declared that they will order less products from Turkey.

Britex is a small Israeli importer and distributor of textiles. As their Turkish suppliers have raised prices, the company has responded by moving to other sources. According to their CEO, orders are up 30% ever since.

Negev Textile Ltd is located in southern Israel near Sderot, which has seen thousands of missiles land on the town from Gaza in the past decade. The company dyes textiles and has suffered from Turkish price competition in recent years. Suddenly, its all change and the clients have started to storm back.  

When Fatah launched the Intifada in 2000, little consideration was given for how the local population may suffer economically. Much the same can be said for the Turkish government, where its support for the flotilla has been followed by a down turn in parts of its own economy. 

And in the meantime, the tactics of Hamas has resulted in a micro boom for some Israeli manufacturers.

Starting a successful business: pain and gain

Bare Escentuals (BE) is an American manufacturer of mineral-based cosmetics. Starting out as a cottage industry in 1994, the firm is valued today at over US$1.7 billion, approximately. The story of everybody’s dreams, but is it a reality available to all?

If you read about BE, you begin to identify 3 common themes which can be seen in many successful businesses.

First, no pain means no gain. I have met several people recently, who are good, intelligent, decent folk. And they feel that this should be enough to ‘make it through”. The horrible truth is often very different. However you cut it, most people do not get on without some sacrifices and a lot of sweat.

Take it from another angle. How many of us go through tough patches on our home (or private) turf. Not everything comes easy. So we should not expect anything different in commercial life. My good friend Mike Faibisch recently gave true expression to this and serves as an inspiration for others.

Next up is planning. At a very early stage, entrepreneurs must think through their vision and ask if it makes sense. If so, how and why. It is almost invariably the role of the big chief and founder to steer the set up period around many obstacles, and this in turn requires a firm plan of action.

I recently sat down with a CEO. He had three action items on the immediate agenda. But their timing was out of sync with each other. He was afraid that tasks would be completed and effort expended, but the overall effect would be minimal. Brilliant!

And the third factor is all about “seizing the moment”. Sometimes, entrepreneurs need to just go for it. I was once working with an inventor. His product was simple but effective. He was offered a route to market by a single importer.

However, my client could only see bigger dollar signs in front of his eyes. Eventually, all his contacts became tired of him and he was left with his hopes, a worthless patent and a dwindling bank account.

Sustaining the Gaza economy

Like many things in Gaza, the truth about its economy is covered up amongst the spin of interests groups and their supporters. Even the IMF and World Bank surveys, are often prepared by locals, who are suspected of having a ‘less-than-objective’ agenda.

As I observed a few days ago, the inherent contradictions were brought to light by the visit to the region of EU foreign policy chief, Ashton. In order to combat what she saw as a humanitarian crisis, she announced another aid package. Yet, on the same day, the people of Gaza were treated to a brand new shopping mall.

What’s really going on?

Back in May, before the flotilla fiasco, the Financial Times was already reporting that: –

Some argue that Gaza’s tunnel economy is becoming a victim of its own success. … the remaining tunnels, about 200 to 300 according to most estimates, have become so efficient that shops all over Gaza are bursting with goods.

Branded products such as Coca-Cola, Nescafé, Snickers and Heinz ketchup – long absent as a result of the Israeli blockade – are both cheap and widely available. However, the tunnel operators have also flooded Gaza with Korean refrigerators, German food mixers and Chinese airconditioning units. Tunnel operators and traders alike complain of a saturated market – and falling prices. “Everything I demand, I can get,” says Abu Amar al-Kahlout, who sells household goods out of a warehouse big enough to accommodate a passenger jet.

A month later, The Economist confirmed that life in Gaza was far different than what Ashton et al is led to believe.

American investors of Palestinian origin are set to open Gaza’s first mall. Land prices in Gaza city have shot up. Saudi investors have asked management consultants to look for opportunities.

The Palestinian news agency, Maan, is an excellent source of news. If you click on its Gaza page, you will see a typical spread of anti-Israel features. Understandable. And in-between, you can also learn how new cars are about to be sold in Gaza. Evidently, there is a lot of spending power in Gaza.

Maybe the real question is who has access to this financial wealth? In early July 2010, the Palpress news agency released a report in Arabic about Hamas corruption in Gaza. As a (google-supplied) translation reveals:

 Hamas movement in the Gaza Strip a chronic crisis because of corruption, its ugliest forms, in all joints of political and military, from its Prime Minister Ismail Haniyeh, who continues with his family to buy apartments and land through the military wing ” Qassam Brigades, “all the way to junior government officials who receive bribes from citizens burdened because of the Israeli blockade.

So we have NGOs and the EU claiming water and health situation in Gaza is not up to standard. We have consuming spending going through the roof. And the top politicos are on a roll.

In order to sustain this economy, three things need to happen. First, Hamas must maintain its autocracy. Second, Western taxpayers must be prepared to contribute generously, and at the expense of other important causes. Finally, the international media must continue to ignore such contradictions, just as it has failed to report on the new mall.

Israeli economy: growth or slowing down

Israel’s business climate worsened moderately in the second quarter as uncertainty in global markets and Europe’s debt crisis affected the risk level of local companies, Business Data Israel reported Sunday.

Not very optimistic. In the second quarter of 2010, exports were lower by 2.5%. There are clear concerns that the economy is slowing down, especially has Europe struggles to emerge from the credit crisis. Even foreign investment is falling off.

At this point, it is worth taking a breath and pausing for thought. The Israeli economy is still perfoming well, with growth at around 3.5%. It is just that this is not as high as predicted or hoped for.

Trade delegations are still popping over in quantity. I was chatting to a member of a team from Colorado. Amongst several opportunities, he was looking at further gas exploration. For him, what has been discovered in the Tamar field is just the beginning of a long story. The net result will be a massive positive shift in Israel’s balance of payments, and probably with geopolitical fall out as well.

Now consider that Israel appears to have a central budget and inflation under control. Unemployment is at 6.5% and dropping. And when you factor in the expected investments resulting from OECD membership and the Tel Aviv Stock Exchange joining the leading MSCI index, the long term future looks very healthy.

Yes , there are still concerns. Despite a recent weakening, the shekel remains strong against leading currencies, which harms profitability. And, as many have written, the high tech environment demands systematic restructuring; too much emphasis on the wrong technologies.

So, what’s the wrap up? The short term is unlikely to produce any exciting stats. But this is not an indication of a recession. The year 2011 is still looking good.

Innovation: Canada takes a lead from Israel

Israeli high tech may be wondering about its next steps. However, the charge towards innovation is still on. Only yesterday, I met a start up medical device company that has incorporated the letter “D” in its name, which stands for “destructive tech”.

I have written how Denmark is looking at the Israel model to becoming a successful innovative society. Yesterday, I went to a fascinating evening, where a new Canadian commercial approach was presented.

The discussion was led by Mr Sheldon Potter from Fogler, Rubinoff LLP and by former Israeli ambassador to Canada and now President of the Israel Canada Chamber of Commerce, Mr Alan Baker. Now Canada is an economic powerhouse. Toronto hosts the world’s 8th largest stock market. The country boosts a comfy life style.

As Potter observed, Canada has become “innovation hungry”, and there is little infrastructure to support the desire for change. And why look to Israel? In Canada, university research papers used to stay on the shelves. In Israel, they are commercialised.

In the past few days, the Canadian media has picked up on the theme of how poor innovation results in low productivity. For a country trying to emerge from the shadow of its American neighbour, that is bad news. Ontario Premier, Dalton, McGuinty, has been amongst the most open in calling for a change in economic direction.

And here’s the connection to Israel. McGuinty recently led a strong delegation to the Holy Land to consider joint ventures in the health sector. The states of Manitoba and Quebec have fielded similar task forces. There are discussions to set up Canadianincubators, as well as an office of the chief scientist, just as Israel did many years back.

And as for cooperation between the two countries, there are many stories to tell. An Israeli solar panel company has reached a technology agreement with a large manufacturer of spare parts for cars. And in a few months, a major delegation from the retail sector will be seeking partnerships with innovative Israeli manufacturers.

If Denmark and Canada can learn from Israel, who wants to be the next economy to benefit?

What Israeli spin cannot hide about the Palestinian economy

  On 14th July, the EU announced increased financial support for the Palestinians.

The European Commission has agreed an additional financial package worth € 71 million for the Occupied Palestinian Territory, topping up the € 224 million already allocated by the EU in the 2010 European Neighbourhood and Partnership Instrument, as well as a reinforcement of humanitarian aid for Palestinian refugees.

For Catherine Ashton, the EU top foreign policy official, Israel has not done enough to help the poverty of the Palestinians. And many claim that the situation in the West Bank is not much better. Citing charities like Save The Children Fund, bloggers say that West Bank prosperity is  a myth.

Boring stats reveal that in absolute terms Gazans received only 12 tons per month of food aid – far less than Zimbabwe, Ethiopia or any of the other hot spots. Put that into “loaves of bread per head”, and suddenly Palestinians have received 10 times more than their “competitors”.

Sounds wrong? Well have a look at these photos. On the same day that Ashton was moaning about poverty in Gaza, a brand new shopping mall was opened in the area. Some kind of computer imagery ploy? Not if you check out the website of the mall.

And no, these are not isolated situations, taken out of context. Here is how one Syrian blogger compared many Arab countries to what he has witnessed in Gaza.

And as for the West Bank, it is not just the luxury car business that is booming. The end of Plaetinian led violence has seen a return to the choices of normal consumer spending.

The biggest demand is for their four-wheel-drive models, but prestigious European cars are also selling well. The Al-Bustami company, for example, deals exclusively in German cars such as BMW, Mercedes and Golf.

What is it that Ashton refuses to acknowledge? Why are Western taxpayers bank rolling this hypocrisy?

Back in February 2010, acclaimed Palestinian journalist, Khaled Abu Toameh, asked the same question.

Donor countries have yet to respond to revelations by former Palestinian intelligence official Fahmi Shabaneh that top Palestinian Authority officials are continuing to pocket millions of dollars, earmarked for financial aid to the Palestinians in the West Bank and Gaza Strip.

“Don’t the Americans, Europeans and Arabs care about their money that is being stolen? If they continue to turn a blind eye to the corruption of the Palestinian Authority, Hamas will eventually take over the West Bank the same way they took the Gaza Strip.”

Nearly a month after Shabaneh, who headed the anti-corruption unit in the General Intelligence Service, revealed in an exclusive interview with The Jerusalem Post that some of Palestinian Authority President Mahmoud Abbas’s close aides and loyalists had siphoned off hundreds of millions of dollars to private bank accounts, decision-makers in the US and EU continue to bury their heads in the sand.

Hamas or PA; Gaza or West Bank;  Ashton and her caring political friends are determined to plough on with their spin, but for the benefit of who?

More concerns about Israeli high tech

Sver Ploscker is one of Israel’s leading economic journalists. So, when his latest column echoed my thoughts on Israeli high tech, I was very pleased but saddened in one breath.

Yes, sure, my ego was gently stroked. However, he was also indicating that not all is looking so rosy for the future of the power house of the Israeli economy.

Ploscker based his thoughts around an interview with Haim Shani, the director-general of the finance ministry. Now Shani is no ordinary bureaucrat. When he was convinced to join the civil service, he had to give up on his successful post as CEO of Nice Systems, one of Israel’s largest software houses.

 As Shani reports, high tech accounts for around 40% of Israel’s exports and 15% of its wealth. So, if something was to go wrong there, the country could be in trouble.

What seems to concern analysts is the “start” of the process. “Innovation”, that key buzz word, is no longer so paramount. Shani notes that less scientific degrees are being awarded. There is less local money available at seed stage. In fact he noted how more money is poured into real estate, locally and overseas, rather than into industry.

The discussionwas not totally pessimistic. However, the conclusion is clear. There is a clear need to evaluate quickly how to apply Israel’s many strengths and capabilities with changing global commercial trends.

Israeli high tech dream – time to wake up?

“Obviously we will set up a Facebook (marketing) operation in Israel.” Thus says their VP Advertising exec, David Fischer, in an interview with the Hebrew paper “The Marker”. And the company will join other megas like Siemens, Microsoft and Intel with significant operations in the Holyland.

Great news indeed, but is it merely covering up a more disturbing trend. Is the Israeli high tech boom, which has been running for nearly 20 years, reaching the end of its path?

The success of the recent decade, despite wars and recessions, has been staggering. GDP has risen over 3% per annum on average. Using OECD, Israel invests over 4.0% of its income in new industry. The country continues to rank amongst world leaders in patent generation. Jerusalem has become a centre for the solar technology. Etc, etc, etc.

And yet, something is not quite right. There are numerous reports that overall funding of new investments has not picked up since the credit crisis. A new index for biomed shares has proved to be a disappointment – although admittedly it was launched in a difficult period for stocks globally.

Michael Eisenberg is a leading local commentator. In the first of a 2-part article, he observes that “the world of technology is rapidly changing around us and we are not doing enough to address the challenges.”  Eisenberg’s specific complaint refers to human resources – too many start ups chasing too few people, many of whom are trained in the wrong disciplines such as dot-net.

Eisenberg used the example of Conduit. It is no secret that this Rehovot based company has sales that have gone viral, rapidly . And yet, despite great benefits for employees, Eisenberg writes how they are finding it difficult to recruit the correct talent.

Eisenberg’s key theme of the wrong resources in wrong areas was rammed home to me yesterday. I attended an innovation seminar, organised by various public bodies in Jerusalem. For example, Bioline was there, again stressing the message that the capital city has much to offer towards the growth of the country.

The lead talk was given by a senior figure from the Office of the Chief Scientist. One of his slides proudly showed how despite the recession, his team has increased investment in new projects. And as he continued his explanation, revealing the breakdown between sectors such as telecoms, life sciences and others, somebody whispered quietly “where is the figure for cleantech projects”?

Where indeed? This new industry was not on the chart. That says something, and sends out a message unease.

The high tech and communications industrial revolution has been rapid. Globalisation is the buzz theme. Has Israel become too confident and not realised that the world’s innovative streak is now rushing ahead, without her up front?