Archive for July 2012

Israel’s financial planners – differentiating spin from the truth

July 30, 2012

The OECD has warned Israel for months that Jerusalem’s budget did not add up. The newspapers of been full of similar articles. Finally last week, the Israeli treasury moved to plug a 14 billion shekel – say US$3.5 billion – gap in the finances. Loads of new or higher taxes. And as is common in such situations, the lower and middle classes will take the brunt.

Well, the recognition of defeat will be welcomed by the financial markets. However, there is general acceptance that there is more to come.

What concerns me, and I have stated this before, is that these measures were clearly issued in haste. For all the pessimistic forecasts, those in (so-called?) control did not listen. For example, it is less than a month ago that the Finance Ministry announced that certain import tariffs will be reduced over the next three years. That same decision was revoked last week.

Israel is not as badly off as other countries. It is no Greece nor Spain. Its growth is far superior to that of France and the UK. That said, eight million citizens deserve a better performance from their fiscal planners than served up to date in 2012.

It is with some irony that the one bright spot has come from the roads. Israel’s transportation system still leaves a lot to be desired. Nevertheless, the installation of new road safty cameras have created of new profit centre, as the fines have poured in. This is one step to be welcomed…..until I get caught(?).

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Israel’s economic plan, or not?

July 27, 2012

I have not hidden my dismay. The Prime Minister of Israel, Bibi Netanyahu, has come close to blowing much of Israel’s economic progress of the past decade or so. By Wednesday night this week, he seems to have woken up and concocted some emergency measures to plug a large government fiscal deficit.

The move has earned the praise of international economist, Stanley Fischer, who is also Governor of the Bank of Israel. That said, it is generally accepted that the proverbial plug is not big enough.

In fact, it was Bibi’s own spin that gives away the plot. In attempting to justify higher taxes and budget cuts, he mentioned how he was intending to introduce free education from the age of three. Add in a few new missile systems needed because of the Iranian and Syrian crises, and you have a series of large monetary promises that cannot be met by a token rise in tax on cigarettes.

Bibi’s meandering policy making has already seen the currency devalued against the dollar and sterling by 4% and 3% respectively during July 2012. Overseas investors are known to be withdrawing positions from the Tel Aviv Stock Exchange. Unemployment is back at 7% and rising.

The Prime Minister may not be able to control the dynamics of the Syrian and Iranian regimes, nor even the bizarre financial planning modes of Greece or Spain. However, he has been elected to lead, responsibly, in Israel, and it is time for him to do when it comes to the economy.

Who needs to be concerned about cash flow?

July 25, 2012

As a business mentor, you feel that you have heard all the excuses from senior managers why they do not watch their cash flow and look to the future. Pick from the following list:

  • My accountant says I am making a profit
  • I have loads of sales pouring in
  • I am too scared / I don’t do numbers
  • The business is too complex – too many uncertainties
  • I can see what happened in the past
  • Too busy
  • A.N. Other

If we have to watch our home finances, the same rules apply to our commercial world. No matter how positive things look around you as a decision maker and no matter if you prefer to be doing something else, you have to recognise that the cash flow situation does not go away. Be ready for the nasty surprise.

To be specific, it is essential to have a grasp on where you are going, both in the short term and in the long term. And this golden rule applies to each and every operation, no matter what their size is.

In the past week, I have visited successful businesses, which are being challenged by a severe and sudden downturn. The bigger shocks, though, were the unexpected phone conversations with the bank – what to do with suppliers’ checks that had been presentedand cannot be met. And when I asked to see a spreadsheet looking ahead, blank looks were the order of the day. The truth is that in most cases, the decision maker had ignored cash flow planning.

There are solutions. The small biz can create a simple excel application that is updated daily when the CEO looks at his bank account online. (Hint. This may not be a pleasant task at first, but it is far worse than handling a call from the bank – as just mentioned.) And, of course, there are no shortage of software applications for more complex commercial operations.

The lesson of all this: Even if you have a mega successful company, if you ignore full and professional cash flow prediction modelling, you will eventually suffer to the same degree (in reverse) as your previous achievements.

If only Netanyahu had stayed as Israel’s Finance Minister?

July 24, 2012

Whatever you say about the man, when Israel’s current Prime Minister, Benjamin (Bibi) Netanyahu was Finance Minister, he did a great job. The stats show that from 2003, he initiated and then presided over a period of supreme growth in Israel’s economy, a pattern that continues today nearly a decade later.

However, that triumph is increasingly looking like a thing of the past. GDP, export and tax revenue forecasts for 2012 are being consistantly revised in the wrong direction. And Bibi, as Prime Minister, is spending his time these days shoring up his coalition, investing in incentives for new partners rather than in industry. Some basic facts from this week’s news alone:

  • The stock market is dropping, just like much of the OECD economies.
  • Tax revenues are over half a billion dollars below expectations
  • Unemployment, expected to rise after its record low last year, is still higher than predicted
  • As European economies freeze up, exports have not found enough new markets, leaving a widening gap in the balance of trade.

In contrast, one of the deals Bibi offered to a group of politicans was estimated to cost around 12 million shekels (US$3 million). So when it was announced this week that the Ministry of Finance has delayed the decision making process for the 2013 budget, you have to ask yourself: “What’s going on? Is anyone in charge?”

As I indicated, Prime Minister Bibi has spent much of the last 2-3 months manipulating small partners and potential partners for his coalition. Commentators and opinion polls inidicate that he has lost political capital in the process. By way of a suggestion, if he cannot lead the squabbling pack, maybe he should stick to what he knows best, economics…….before his legacy is lost and the country has to face a needless time retrenching.

The direction of Israel’s economy – two anecdotes

July 21, 2012

Yesterday’s posting about concerns ahead for Israel’s economy turned out to be particularly timely.

On a more generic level, it seems that Israel is not the only economy that weathered the 2008 global turndown, but is having troubles second time round. As I read today in the Wall Street Journal, Brazil, India and China area all facing economic slowdown. Of course, if these three do not perform, then they will drag Eurpope and America down with them, showing their strength above that of Israel.

The second point is Israel specific. I commented in my blog about the lack of leadership from Jerusalem. Sver Ploscker in the Yediot newspaper observed that the budget deficit, which has been around around 2%, is now going to rise officially to 3%, despite protests from the Bank of Israel. However, as most tax rises will be delayed for electoral reasons, 4% is probably the likely outcome.

Yes, this is bound to put mroe pressure on interest rates. And the plans of the Finance Ministry to cut government spending by around 650m shekels this summer will look inadequate even before they are implemented.

However, this “cutback game” is simply what I write – a game. For example, the government has just announced that it will allocate an additional 58 million shekels – found from who knows which reserve – to support the upgrade of an institute of higher learning. It happens that the establishment is politically aligned with the Finance Minister himself.

More short term political capital achieved, whilst risking future economic stability. At Israel does not have any external threats to deal with!!!! 

Israel’s economy – seeking direction in summer 2012

July 20, 2012

Israel’s economy has been thrilled and excited on a decade of growth, which neither an Intifada, nor war with Lebanon nor global meltdown succeeded in halting. Last year, GDP shot forward 4.8%. And in 2012…….

Well, the prediction for 2012 has just been revised downwards, again, to 2.7%. While the hope for 2013 is to see a return to 3.5%, all these figures are looking  very optimistic. What’s going wrong?

The simple answer is bad trade figures. Exports have fallen off by 2.5% in the first quarter of this year, while imports have surged ahead. Specifically, exports to European mainland, notably in the pharmaceutical sector are way down. It is not the PIGS (Portugal et al) issue that has impacted on Israel so much – and yes, the pun was intended – but the slowdown of the other large economic powerhouses in the continent.

Decision makers at the Finance Ministry and the Bank of Israel are facing several problems at once.

ITEM 1: It is recognised that there is a major budget shortfall. Tax revenues are lower than expected. However, the defence establishment is demanding heavy and immediate new resources to cope with Iran, Syria and Gaza. The navy alone has asked for nearly a US$1 billion to protect Israel’s new offshore gas supplies. And other claims for expenditure are floating around as the government is being challenged to meet commitments over road building, new classrooms, pension schemes and more. If that is not complicated enough, the central bank is using the rate of interest to dampen the housing sector, which overheated.

There are some bright spots. By 2015, Israel should start to reap the benefit of new income from its offshore gas and oil fields. And internationally, as recorded by Deloitte, the country still inspires confidence in overseas investors.

However, it is ITEM 3, that is the real worry for me. Private sector consumption has remained positive, revealing a 2% growth in early 2012. That stat is often an indication that election economics is coming into play. This raises the ugly question as if the Finance Ministry will continue to manage its books for short term objectives or for the long term benefit of the country?

For the past decade, the latter has usually been the case, but just remember: Bibi Netanyahu, the Prime Minister has already delayed discussions on the 2013 budget due to internal political weaknesses. Markets will soon pick up on that uncertainty. Interest and exchange rates will feel the pressure and that in turn will force unwanted changes.

Israel has just gone through a two week heatwave. That is no excuse for a lack of leadership.

Can you boycott trade with Israel?

July 13, 2012

BDS is an international movement that purports to  act solely against Israeli activity based in what is called the West Bank. On the other side, there are many that claim and with a wide amount of justification that the campaign is really a euphemism for the deligitimisation of Israel as a whole.

BDS activity is particularly active in the UK and has gained the support of the Church of England. So it is with some irony that London was the host in June for a major conference featuring 40 Israeli start ups. Stats reveal that bilateral trade has shot up in 2012, despite the European recession. And despite being a country of under 8 million people, Israel features over 40 companies on London stock market listings.

What caught my eye about the conference was the list of high profile attendees. Aside from the politicos, “Jimmy Wales of Wikipedia, Brent Hoberman of lastminute.com, Errol Damelin of Wonga, Jimmy Maymann of the Huffington Post, Mark Read of WPP, Dov Moran, founder of M-Systems, which invented the USB flash drive” were all present.

So if BDS is all about boycotting, what could they try to stop in the next few months?

Well, how about banning the import of all Intel chip based products, which continue to feature prime Israeli r&d. Without being too flippant, one suspects that the BDS movement is using such computers themselves.

Next, the BDS supporters will have to avoid coming in to London during the Olympics and probably after that. Traffilog, a software house located outside Tel Aviv, has secured an order to help control vehicles in the British metropolis as well to identify suspicious objects.

And if the BDS team wants to inform each other of this potential logistical restriction, they can no longer use BT appliances. The “international communications giant British Telecom has chosen Israel‘s Cyber-Ark Software to monitor and secure its accounts.” And if that is not enough, they must also be aware of which mobile tech they use, as many phones these days contain Israeli based tech, such as the GPS systems.

I could mention Richard Branson’s latest joint venture to distribute Israeli water coolers. How about the desire of Dell Computers to take on more Israeli technology partners? As I wrote, trade is booming.

I am forced to ask a delicate but direct question: What is BDS all about? Boycotting trade? Maybe at the margins but as I have detailed, globalisation shows that this is a pretence. Human rights? Not really, because these people seem to care little for the daily murders in Syria or the fact that Saudi women have only just been allowed to represent their country at the Olympics. The question begs to be answered.

I looked at the home page of the BDS website. With all the politically correct prose it can muster, the BDS technical writers compare their campaign to the boycott of South Africa last century. However, they omit to say that the same campaigners of old wanted to see the country remain on the geopolitical map, only under a proper democracy. Maybe a truer equivalent is with an earlier European boycott that offically commenced in Nuremberg in 1935?