Archive for August 2012

Will the real Gaza economy stand up and be counted?

August 31, 2012

The headline from the New York Times made for a simple summary of a UN report: “U.N. Sees Bleak Outlook for Gaza Unless Services Are Improved

The UN describes how this narrow fertile strip of land, which has been run by Hamas since 2007, may not be fit for habitation by 2020. Education, health and other basic services are on the point of collapse. Unemployment is high. It is sandwiched between geopolitical tensions of Egypt and Israel. Life is very difficult.

To emphasise the point, Maan News service, based in Ramallah, reports that yet again Palestinian Authority (PA) employees in Gaza may not be paid their salaries. The background appears to be a combination of reasons; lack of funds within the PA and also a dispute between the Palestinian Government and its supposed Hamas allies in Gaza.

So how does one reconcile this gloomy picture with new investigative journalism from Arab sources that of the 1.6 million people in Gaza, there are at least 600 millionaires. In fact, on the ground witnesses reveal a very different kind of Gaza than the one depicted in the UN report.

Informed Palestinian sources revealed that every day, in addition to weapons, thousands of tons of fuel, medicine, various types of merchandise, vehicles, electrical appliances, drugs, medicine and cigarettes are smuggled into the Gaza Strip through more than 400 tunnels. A former Sudanese government official who visited the Gaza Strip lately was quoted as saying that he found basic goods that were not available in Sudan. Almost all the tunnels are controlled by the Hamas government, which has established a special commission to oversee the smuggling business, which makes the Hamas government the biggest benefactor of the smuggling industry.

So what’s the truth? The bottom line of the UN report is that 99% of Gaza’s troubles are the fault of Israel. Well, nobody can argue that Israel finds Gaza a welcome neighbour. Daily rocket fire from the Hamas territory did not cease even as schools started up again this week. The problem was that this context was omitted by the authors of the UN document.

The UN also sw correct to underemphasise the large role that Egypt plays in the Gaza economy, such as providing much of its electricity. More recently, because of the increasing terrorism in Sinai, of which Hamas affiliated groups have a significant part, Egypt has been clamping down on its border with Gaza. Only 24 hours ago, CNN detailed how many smuggling tunnels, a core of Hamas’ revenue stream, have been shut down by Cairo.

For the record, I was talking to a journalist last week, who had recently been through some of these tunnels. He described what seemed to be large and growing centres of commerce, which would do proud any transportation highway around the world.

At the end of the day, the economies of Gaza and Ramallah may share a common trend. Life may not be comfortable for all, while there are still many who are doing well – in fact, really well. However,for the UN to argue that life is unbearable in the Palestinian territories and that is all the fault of Israel’s reminds one of those who print such racist tractates as the “Protocols of Zion”. Both contain the same level of hatred and distortion.

What British and Israeli economic planners can learn together

August 21, 2012

“Easy money, cheap imports and strong confidence are no longer available”.

Thus wrote former top official of the Bank of England, Andrew Sentance, in the Daily Telegraph earlier this week, as he described the outlook for the UK economy. And he added that although the UK had enjoyed 25 years of near unprecedented growth until 2007, there were already clear signs back then that this golden moment was about to end.

And the connection to the Israeli economy? Let’s compare Sentance’s opening comment to what is happening to commerce and finance in the Holy Land.

Easy money: “Researchers have found that only 29% of venture capital investments in Israel during the first half of 2012 involved young start-ups.” For a country that has propelled itself into the OECD on the back of innovation,  that stat is a major red-lettered warning. If seed capital is drying up, where will the next level of growth spurt come from?

Cheap imports: It is generally accepted (except by populist politicians) that commodity prices are on the rise and that this will very quickly feed into consumer price indexes, globally. In Israel, there is a second issue. the shekel has been weakening in 2012 against many of its trading partners. For example, it has lost 7-8% of its value against the American dollar and Sterling. Even against the Euro, the shekel has failed to gain ground. All this means a lot more imported inflation.

Strong confidence: Over the past few weeks, I have stressed how the politicos and civil servants in charge appear incapable of making longterm decisions, which are devoid of self interest. These judgements are being challenged further, as defense officials are demanding more resources to meet the threats from Iran, Hizbollah et al. Where is the strategy of old?

Sentance observes that UK decision makers need to recognise that the paradigm has shifted. Former excellent solutions are no longer so relevant. Would Messrs Netanyahu, Steinitz and Fischer in Jerusalem please wake up before it is too late?

Israel’s economy surprises again

August 20, 2012

Israel’s economy may be doing better than many of its OECD competitors, but the effects of Europe’s downturn are seeping in on the finances of the Holy Land.

Nevertheless, to the surprise of just about all, the economy for 2q12 grew by over 3%, must better than had been feared. Even more staggering was how this spurt was led by exports as opposed to local consumption.

Well, let’s take that cheer and run with it. The gloom clouds are approaching thick and fast.

  • Budget planning for 2013 is very dodgy, complicated by election politics, weak coalitions within the government, and a defense budget that may need to grow by billions overnight.
  • Sharp changes in commodity prices are about to bump up food basics by 5-10%, a big “no-no” in an election. However, government dilly-dallying over bread and milk prices has seen manufactures suffer unnecessary losses, while consumers moan.
  • A weakening of the shekel against other currencies will result in stronger signs of import-led inflation.
  • And the unions are showing no interest in joining the governments efforts for a revised agreement with employers’ groups.

The road ahead is not simple. The Prime Minister’s time appears to be taken up with the Iran-situation and understandably so. The Finance Minister looks increasingly isolated from his colleagues. The performance of the governor of the Bank of Israel at cabinet meeting showed that he did not appreciate all the nuances of the “defence budget debate”.

In the past decade, Israel’s economy has shown an ability to rise above the troubles of wars, Intifadas and global downturns. Growth has been resplendent. At each juncture, there was a “strong man” in charge. We are looking for such a person today.

Industry, recession and the failure of central planning

August 13, 2012

It is not a rocket science. You do not need a degree in finance or business admin. During an economic downturn, factories close. People are laid off.

Not only is unfair to the workers – and their families. Quite often local communities suffer the knock on effects. In turn, social services are inadequate to meet the challenges. Meanwhile, the government is…………………well, let’s come back to that.

For the moment, let us examine what is happening to Israel, as European markets dry up and domestic industries are cutting stocks. A vegetable canning factory near Safed has yet again had to appeal for help from the authorities. Phoenicia Glass, employing hundreds across ethnic lines, is short of nearly US$100 million.  Extra Plastic, Sederot, with over 120 workers and located in town that had the dubious pleasure of suffering consistent shelling from Gaza for years, is about to go under – even though the owners recently paid out a hefty dividend recently.

Blame poor management, unexpected changes in the markets, owners cleverly manipulating some accounting rules, etc – factories are shutting their doors. Meanwhile, the government is…………..

Would it be too cynical to state that the government is too worried about votes? After all, a general election is scheduled within the next 12 months. What bothers me is the lack of planning, when handling these situations. These crises can be predicted to a certain degree. So for example, surely if a factory cries for help, statutory payments can automatically be delayed for 60 days – maybe paid off later or just cancelled?

And where are the benefits to the workers? Offer them a small sum each and some space to start up a small business. Provide them some mentoring hours for free. Those are just three obvious suggestions that would cost the central treasury relatively nothing compared to unemployment pay, lower tax revenues from the community and the cost of other social problems.

Unfortunately, what the Israeli public is left with is sensational headlines and a dawdling cumbersome government mechanism that may or may not cobble together solutions and wrapped in wafer-thin spin. Meanwhile, the economy continues to suffer, along with hundreds of families.

Why decision makers hate to admit to mistakes – Israeli case study

August 9, 2012

There is an old joke in Israel, often attributed to the air force: If you make a mistake, just shout louder and nobody will notice the problem.

In the past 24 hours, I have read 3 direct criticisms of the economic performance of the Israeli Prime Minister and his Finance Minister.

  • On last night’s news, a leading commentator urged the politicians to stop blaming European meltdown for the country’s worrying financial figures. The bottom line is that for two years, the politicians have spent too much and are continuing to do so.
  • This morning, in “Yediot” newspaper, a similar theme was echoed. The call was to wake up and to act decisively, before the money markets start to make their own painful demands for changes.
  • And, in some ways the act of Brutus, the Governor of the Bank of Israel, has  warned that “the decision to increase the deficit target to 3% of GDP and the uncertainty of meeting the target raise the concern that the credibility of fiscal policy – which was a central component of the economy’s success in dealing with the previous crisis will erode,”. Stanley Fischer, close friend of the head of the Fed and other central banks, has had enough.

The stats speak for themselves. Growth predictions are falling all the time – now down at around 2.5% for 2012. Exports are dropping off. Unemployment, expected to rise, is shooting up. etc. Cuts have been made to day-care centres and infrastructure projects. Investors are making a fortune out of government bonds these days, a sure indication of a problem.

And meanwhile, in order to shore up his coalition, the Prime Minister continues to approve heavy financial payouts to the parties that stay with him. In other words, in order to prove to others that they are correct and to stay in power, the prime decision makers for Israel’s economy are continuing to carry on with the very mistakes that took them into the mess in the first place.

I have just read a fascinating blog on why it is difficult for all of us to accept our own mistakes:

…..the setbacks and failures that derail your future plans or call into question your self-image. These are the ones that occur because of your deepest weaknesses and flaws. For this reason, we prefer to avoid thinking about these mistakes, or to attribute them to circumstances out of our control.

Anybody know how I can send that posting to Israel’ government before it is too late?

I don’t need a business plan, do I?

August 8, 2012

It takes about 5 seconds these days to find a site that says “4 great tips to build a business plan”. Simple. So why do so many people just ignore this basic piece of planning for their business?

To tackle the issue from another angle: Consider the question “who needs a biz plan?”. Again, the answer is straightforward – just about everyone; a start up in hightech, the kiosk on the corner of your road, an established multinational, and even your home finances. You can’t ignore them.

So what does a biz plan give you? Have a look at three case studies from Israel that I have come across in the past week alone.

First, I am currently helping out a small, growing telecom company, and the founders wish to raise money from investors. So, they need to present a document – a.k.a. business plan – which shows their technological, financial, and managerial abilities. Fine.

However, that is not the sole purpose of the report. The act of writing and editing the document is forcing the head team to ask what it is they really do. I participated in a fascinating discussion, which resulted in an emphasis switching from the tech aspect of the company to the human element. Clearly they are more than just a bunch of enterpreneurs with yet another platform technology. The creation of the biz  plan has challenged them to realise who they really are and how they can maximise their full potential.

Second, I have come across a family business in the Jerusalem area, which sells household products. The concept is one of the oldest in international commercial history – buy from a supplier, add a mark up, sell quickly and at a profit. So, I was stunned to be greeted by the news that the owner has accumulated debts worth hundreds of thousands of dollars. Blaming poor stock control is not enough of a solution. Time to look at the lack of financial planning and what that can show for the future.

And my final example lies in the heart of Israel’s Ministry of Finance. This week’s newspapers have highlighted a fact that many people had been predicting for months: The budget deficit in Decemeber 2012 will be close to twice the original forecast of January.

This is not just a case of somebody getting it wrong, and badly so. Taxes have already risen and more changes are planned. Infrastructure projects have been shelved. The building of new classrooms has been postponed. Improvements for day care facilities have been cancelled. So much for financial planning from the top, from the very people who trying to help us run our own lives.

Get out your excel spreadsheets and start some realistic planning for a viable financial future.

What’s the value of the life of an Israeli soldier? A comparison

August 6, 2012

Whether you believe Israel is on the right or wrong side of the so-called ‘Middle East conflict’, you cannot doubt that Israel’s army gets to see some action too frequently. Just last night, terrorists broke into an Egyptian army base in the Sinai desert, stole two APC’s and tried to ram the border crossing with Israel. A battle ensued.

So how would you pay your teenagers for defending your country?

Let’s start from the beginning. From the age of 18 in Israel, boys are conscripted for 3 years and girls for 24 months. Depending on the level of training, where they serve and the ‘danger element’, the monthly wage varies from around 350 nis to 800 nis. So at the lower end, we are talking about US$90 or STG60 per month.

To give that figure some kind of comparison, stats in today’s newspaper reveal that an American recruit will receive about US$1,600. For the UK, the figure is close to US$1,200. Even the Chinese army pays better than the Israeli army at US$150.

However, the average Israeli private on parade does not have to go abroad to learn how his own Finance Ministry officials, safe in the cosy chairs, are insulting him (or her). The minimum wage in Israel is about 4,100 nis, and that is for a 185 hour work month. The soldiers are frequently stuck for over a week on the base, receiving maybe a tenth of that!

And then of course there is the touchy subject of those who are exempt from the army for religious reasons, and end up being categorised as “early-level teachers”. Their classroom wages, also often below the minimum figure, is way above that of their brothers in arms.

In effect, Israeli soldiers, who risk their lives for the country, earn a living which will just about buy themselves a daily portion of felafel in pitta. Disgusting as that is, my point is more generic. There are many grades of workers in the Israeli public sector – nurses, social workers, soldiers, etc – who are paid far far less than they are worth. It is time for the Finance Ministry to deal with these anomalies, before society has to pay a heavy price.