Damage to Israel From Russian Financial Crisis Limited, Treasury Predicts

Report points to exposure in real estate, tourism and farm exports but doubts effects will be widespread.

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People walk below a board showing currency exchange rates, with a mannequin seen behind a shop window, in central Moscow, December 18, 2014.
People walk below a board showing currency exchange rates, with a mannequin seen behind a shop window, in central Moscow, December 18, 2014.Credit: Reuters

Israel is feeling the impact of the ruble collapse through a clutch of Israeli companies active in Russian real estate as well as in the travel and farm sectors, the Finance Ministry said in a report released on Monday, but it said the impact would be limited.

“Commercial ties between the Russian and Israeli economies has grown in recent years and includes, among other things, trade, investment and tourism,” treasury chief economist Yoel Naveh said in the report. “Yet in spite of the growth, the Russian share of [Israel’s] economic relations remains relatively small for most sectors of the economy, apart from agriculture and tourism.”

Naveh noted that the Russian economy was in far better shape than it was prior to its last economic crisis in 1998. The 1998 crisis, which was precipitated by falling world oil prices, saw Israeli exports to the country plunge 30%.

But even if Russia’s current crisis, which was set off by Western sanctions and Russia’s military involvement in Ukraine, leads to a similar drop in Israeli exports, that would trim just 0.05% from Israeli gross domestic product in 2015.

The treasury estimated that Israeli institutional investors have a combined exposure in property companies with Russian assets of about 5 billion shekels ($1.3 billion), led by Eliezer Fishman’s Jerusalem Economy Company and Lev Leviev’s Africa Israel Investments.

JEC shares dropped 2.7% to 10.99 shekels on Monday, bringing its decline since the start of December to 53%. Africa Israel ended off 2.5% at 3.92 shekels, a decline of 26.8% for the month to date.

In addition, Israeli institutions have another 200 million shekels invested directly in Russian energy shares, chiefly Gazprom and Lukoil. They risk further exposure indirectly, through their holdings in foreign mutual funds that specialize in emerging markets, but the treasury said it was difficult to assess the level of risk because the holdings are so widely dispersed.

The treasury warned that financial assets in Russia held by Israelis could become illiquid for an extended period in the event of a long crisis. But the treasury noted that Israeli exposure isn’t particularly high, amounting to just $46 million in 2012.

The Finance Ministry said bilateral trade with Russia declined somewhat this year but was more or less in balance, at about $1 billion in each direction. While Russia accounted for only about 1.5% of Israeli exports, it took a much larger share of Israeli exports of farm products and processed food, the treasury said.

Other big export categories are pharmaceuticals, chemicals and advanced technology.

In tourism, Russian visitors accounted for 17% of the total in 2013, about the same share as tourism from the United States. In the first seven months of the year the number of Russian tourist arrivals was down 11% from the same period in 2013, but that was in line with the overall decline in incoming tourism prompted by last summer’s Gaza war.

In the wake of Russia’s 1998 financial crisis, Russian tourism dropped about 10%, it noted.

“It is possible that the current crisis will lead to a sharper decline because Russian tourism has expanded sharply in recent years,” Naveh said, estimating that a steeper drop could shave 0.025% to 0.05% off Israel’s GDP.

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