A Lot Is at Stake, but Foreign Companies Are at Ease Over Election Results

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The election campaign ended Tuesday without much mention of a major player in the economy, namely the hundreds of foreign companies doing businesses in Israel. They employ tens of thousands of workers and participate in some of the country’s biggest infrastructure projects, and the outcome of the elections and coalition talks about to get underway are a major concern for them.

“We were asked [by the home office overseas] what the results will be, what will happen if there is a change in leadership, if the current ministers will be replaced and whether their successors will keep to the same policy direction,” says Gilles Darmon, CEO of Lavi Capital, the local arm of the French investment bank CFL.

Political map

“In short, we said that Benjamin Netanyahu would remain prime minster, that the Likud would remain the largest party and would form the next government. Therefore, we said, there was a good chance that the minsters responsible for infrastructure would keep their jobs. Now, however, we believe there will be a certain degree of change in the political map,” said Darmon.

“Netanyahu is a well-known figure on the international stage, but very few people know who the other personalities are, so we tried to supply them with the basic tools needed to read the Israeli political map and who are the players you need to know,” he said.

Foreign companies operating in Israel through local arms or joint venture subsidiaries employ either local managers or expatriates. They are a major driver of the economy. But those with the greatest interest in local political developments are the companies that have long-term operations and substantial capital invested in the country. The most prominent examples are companies engaged in energy and infrastructure.

“I work with a company engaged in big infrastructure, projects taking six or seven years to complete, but in my conversations with top management overseas I haven’t felt any concerns from them about the elections,” said Nissim Zvili, the president of Alstom Israel and former director-general of the Labor Party and Israel’s ambassador to France.

“The election won’t have any impact on long-term projects, certainly not in the energy sector, most of which is being done through private financing,” Zvili said.

“In the land transportation segment, it’s possible that some projects will be delayed by a year or two, but not the big projects in which we compete, like railway electrification and the Gush Dan light rail project.”

Europe worries Europeans

Zvili said he saw no sign of a “political revolution” in Israel as a result of this week’s election that would bring about a fundamental change in government infrastructure policy. The economic situation in Europe is a far bigger concern of Astrom, a French company, which provides some benefits to Israel.

“Today is the best time to do business with European companies, because many of the big projects on the continent have shifted to low gear. Companies have to lower prices and the euro has weakened,” he said.

Another CEO heading the Israel unit of a foreign company said it wasn’t the election that worried his employer when it comes to Israel. “The interest in the situation in Israel is mainly connected with the high risk entailed, like the Iranian threat,” said the executive on condition of anonymity.

“Only when this issue gets into the headlines do people ask whether they should invest or not, if there is a risk to operations or not,” he said. “But vis a vis the latest elections, there was no interest on a business level though often an interest on a personal level. Here and there someone will ask me what I think. The feeling is that despite everything, the Israeli economy is stable and developed and usually this gives people overseas enough confidence.”

The election produced a new balance of power between the parties of the left and right in Israel, but the foreign business community here doesn’t see this as a dramatic development, said Darmon.

“Overseas, people see the Israeli political system as very stable,” he said. “We told them that Bibi will remain prime minster and that there will be certain continuity in the direction of the economy.”

But there are those who are looking at the same political map and are less confident with what they see.

“I don’t see a coalition of parties whose goals are all in sync with one another, so any government will be less stable,” said a manager at a foreign company involved in the domestic energy sector. “I foresee that soon, perhaps in the next two years, there will be new elections,” he predicted, noting this will have a direct impact on foreign companies.

“When ministers start looking ahead to the next elections, they can’t make important decisions and they try to delay until after the voting. That means we face a small window of opportunity to get decisions made. That’s the reality and we will cope with it - that’s the price of democracy,” said the energy executive, asking not be identified.

It’s no secret that some of the parties and candidates in the last elections were a cause of worry for the foreign business community, who feared they would step up regulation and intervene more in the free market.

One foreign executive, asked how his company would react if Labor’s Shelly Yacimovich formed the next government, responded: “When Abraham Lincoln was chosen president [of the United States], the southern states left the union immediately even before he had made any decisions. I don’t see a situation in which we would leave here before anyone was chosen to form a government. It’s not a personality who changes anything necessarily, but more [the policies] that are imposed and regulations.”

Darmon agrees, saying no one personality can effect fundamental change to economic policy on his or her own

Boycott concerns.

“There is one player more than any other that can still make the big decisions and that is the Finance Ministry. It still is the most powerful player, regardless of who holds the reins of power. The treasury bureaucracy doesn’t change after the election,” he said.

Another factor that worries foreign businesses operating in Israel is the dispute with the Arab world. “At headquarters overseas they weren’t at all interested in the election,” said one manager for a foreign company, speaking on condition of anonymity.

“Our problem is the international boycott on Israel that is growing year by year. At the moment we see no change on the horizon.” Orna Berry, vice president for the U.S. data storage company EMC, said the election could be important to foreign business.

"The rise of Yesh Atid is very important because it brings into the Knesset Meir Cohen, who will act to further the interests of the south,” she said. “We have a development center in Be’er Sheva and it’s important to us that investment comes to the Negev.”

"Yossi Meyuhas, CEO of Marvel Israel, is taking a wait-and-see approach. “Instead of guessing, we’re waiting to see the structure of the coalition and what will be its central policies,” he said. “When we know that, we will have something to say.”

Micron and Intel plants in Kiryat Gat.Credit: Eliyahu Hershkovitz
Nissim Zvili Credit: David Bachar
Gilles DarmonCredit: David Bachar

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