Israel’s economy – thumbs up or down?

“If Israel’s economy is jogging along at 3-4% growth, why are hundreds of thousands protesting. If the government has extra cash from booming tax revenues, why can’t the Finance Ministry hand out a few extra benefits?”

Thus, I was asked on a local radio station this week. The compeer was reflecting a bemusement on the minds on many people. What is happening to finances in the Holy Land?

15 impressive features of the Israeli economy” is a very encouraging headline from business analyst, David Hunkar. He cites low inflation, record low unemployment, low debt levels around 75%, etc etc. As for the banking system, Hunkar quotes an IMF report from January 2011:

….mortgage loan-to-value ratios are also low by international standards. Banks maintain high liquidity, and interbank and direct exchange rate risk exposures are small.

However….Hundreds, if not thousands, are still protesting on the streets, demanding “social justice”. Go into any of the large supermarkets and you will find a string of unexpected discount campaigns – all provoked by the voice of  ‘the man in the street’. The CEO of Osem, one of the countries largest food manufacturers, publicly announced this week that his wage was obscene and that the company will be trimming down the conditions received by senior managers.

What’s going on?

Before we can answer that, there are further complications to be addressed. On the one hand, the global economy may be “hanging by a thread“, hurtling towards a deep recession. Although the jury is still out on that, any significant downturn will impact negatively on the Israeli economy, which thrives via exports.

Now balance that scenario with impending good news, roughly two years away. It is increasingly apparent that Israel’s economy will benefit from offshore gas exploration – cheaper access to fuel reserves and a large gain in tax revenues for the Treasury. Should this bonus is invested in infrastructure – roads, education, health, etc – the next generation of Israelis should be a very happy group of people.

In many ways, Israel’s economy is a case of “the good, the bad and the ugly”. If the notoriously weak politicians cave in to the demands (pecuniary and social) of the protesters and if there is a serious global downturn, the pockets of the Finance Ministry in Jerusalem will soon be empty. Years of prudent financial responsibility thrown away overnight?

And yet, eBay has just sunk US$20 million into an Israeli start up of eight people. I met several clients this week, seeking aggressive marketing models to break into overseas markets. If the government continues to promote this avenue and spirit of innovation, whilst better ensuring that the oligarchs do not run off with all the profits, then there is a strong economic future ahead for the country.

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5 Comments on “Israel’s economy – thumbs up or down?”

  1. Adrian Says:

    There are too many acquisitions of Israeli companies by foreign corporates – look here:

    Not enough big companies in Israel, subsequently not enough big corporate salaries to go around, not enough action on the TASE, not enough tax revenue from such companies. Simple.

  2. Adrian Says:

    Dan Senor (Startup Nation) mentioned it being more complicated and costly to setup a standard business in Israel than a high tech company. Why is this so? Who and how are small businesses licenses granted?

    Prices are high because there’s not enough competition and over regulation. An accident, or kept this way due to vested interests?

    Does Israel have effective antitrust legislation or a consumer watchdog?

    I doubt this society will change, there’ll be some lip service and cosmetic changes from these protests. If it does, it will only be to the loser Left.

  3. […] Israel’s economy – thumbs up or down? « Afternoon Tea In Jerusalem4 days ago … Israel’s economy – thumbs up or down? “If Israel’s economy is jogging along at 3- 4% growth, why are hundreds of thousands protesting. … […]

    • Michael Horesh Says:

      Read my previous blogs:
      1) They are allowed to protest. A rare privelege in teh Middle East
      2) Because although the economy is growing, the benefits are not seen to be shared equally. There is consensus on that point, and there are no plans to begin to tackle matters such as taxation, better housing for young couples, easier access to early eduction, etc.
      3) As somebody in the OECD said, these are the protests of a successful country, not of distress.

  4. Panama foundation Says:

    .Israel 25 740 .Higer GNI per capita compared to Israel.Lower GNI per capita compared to Israel….The economy of Israel is a technologically advanced including a rapidly-developing and . As of 2010 Israel has the 24th largest economy in the world and ranks world nations on the UNs which places it in the category of Very Highly Developed ..The major include metal products electronic and biomedical equipment processed foods chemicals and transport equipment. .The collective communities in Israel traditionally based on agriculture played an important role in Israels economy until the late 70s….In its first two decades of existence Israels strong commitment to development led to economic growth rates that exceeded 10 annually.

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