Israeli Government’s New Coronavirus Rules Threaten Fatal Blow to Many Businesses

Resuming restrictions on businesses will lead to spike in bankruptcies, acting Justice Ministry director general says as central bank forecasts GDP will shrink 6% this year

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A street in Jerusalem on July 7, 2020.
A street in Jerusalem on July 7, 2020.Credit: Ohad Zwigenberg

Monday’s government directive closing bars, events halls and sports facilities as well as limiting crowds at restaurants will finally lead to a surge of small business bankruptcies, Sigal Yakobi, the acting director general of the Justice Ministry, told TheMarker.

The order, which comes as the government tries to rein in a resurgent coronavirus pandemic, will cause many businesses that survived the first lockdown in March and April to finally collapse, she warned. She had previously expected a rise in bankruptcies in the tens of percentage points, but now said the increase will be in the hundreds of percent.

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The Bank of Israel on Monday revised its forecast for the economy, saying gross domestic product would shrink 6% this year, much more than the 4.5% is had forecast at the end of May. If Israel goes into a second lockdown, the contraction could reach 9%, it estimated.

The extent of the problem hinges on how long the restrictions remain in force, how much aid comes from the government and how long it takes for a COVID-19 vaccine to be developed. The problem has been exacerbated by the fact that businesses didn’t have time to prepare for the new directive.

“The smaller the aid program is and the longer it takes for a vaccine, the more businesses and people will be forced to enter insolvency proceedings,” Yakobi said.

So far, there has been no substantial rise in overall bankruptcies, but the number of restaurants turning to the courts has risen to three times the rate of a year ago, Yaakobi said.

“I’ve gone out twice to shopping centers in the past month and a half and it pains me to think about the socioeconomic implications,” she said. “At Cinema City in Jerusalem, 90% of the stores were closed in the evening. The question is how bad it will get before it starts to get better.”

Crowded out

The Israeli Restaurants Association warned that 40% of the country’s eateries are at risk of closing due to the new regulations. Although the order allows them to remain open for business, they can now host no more 50 people at a time, 20 of them indoors, which for many isn’t a financially viable number.

In contrast to the first coronavirus lockdown, when the sector’s 150,000 workers were put on unpaid leave until restaurants were allowed to reopen in the last week of May, this time around the eateries will be forced to dismiss staff.

“About 100,000 workers had returned from unpaid leave after restaurants reopened. Now, in the absence of any economic plan, we’re expecting tends of thousands of layoffs in the coming weeks,” said Shai Berman, the restaurants association’s CEO.

One restaurant that will be closing in the next few days is Tel Aviv’s Turkiz. “The restaurant has 200 seats and employs 30 people,” said one the owner, who asked not to be named. “What that means is that if we operate under the restrictions, we’ll lose tens of thousands of shekels a month.”

Berman said he also expected many workers to file lawsuits against their employers, who won’t be able to pay them all the fringe benefits due them if they file for bankruptcy.

Even after they were allowed to reopen in May, many restaurant owners opted to remain closed due to the restrictions on the number of patrons allowed at a time. Many have taken the decision that it isn’t feasible to reopen at all during the pandemic.

“My workers are asking me if I’m going to put them on unpaid leave and I told them ‘no,’ I’m firing everyone, all 40,” said Elad Dor, who owns the Tel Aviv bar Shishko. “I have no choice. Why is it that Ikea, the malls and the beach can [continue having an unlimited number of people] and restaurants can’t?”

In fact, Israeli shopping malls are feeling the coronavirus squeeze due to social distancing rules that effectively limit the number of shoppers.

TheMarker has learned that one of the country’s biggest mall operators, Melisron, has told tenants that they will no longer have to open Saturday nights and can open later and close earlier – operating from 10:00 A.M. to 8:30 P.M. – on weekdays. These shorter hours will only apply for July.

Azrieli Group announced that it would also adjust the hours of its malls due to the new coronavirus restrictions. Although most of its shopping centers will remain open on Saturday nights, tenants will have the option of whether to open their store. Weekday hours will be limited to the same ones as Melisron malls, Azrieli said.

Mall owners have been under pressure from the big retail chains to act because the drop in traffic has resulted in losses at times of the day when there are fewer shoppers. The situation has worsened this month as the rate of coronavirus cases has grown. In the evening, mall traffic has nearly disappeared, they say.

Until now, tenants at big malls have faced fines of 500-1,000 shekels ($145-$290) for failing to keep their stores open during the center’s official opening hours. Some retailers have told TheMarker that they may turn to mall owners for rent relief for July and the months ahead.

Figures from the industry tracker Retail Information Systems show that sales per square meter at Israel’s biggest malls were down 7.4% in June from the same time in 2019. Shoppers seem to prefer small malls, and preferably strip malls, which saw a 5.8% increase in sales.

Israel’s struggling hotels may face their own restrictions, and two major chains, Fattal and Isrotel, vowed to shut down if they are imposed.

Purple tag for hotels

Tourism Minister Asaf Zamir said he would propose a special Purple Tag for the hotel industry that shows they are in compliance with rules to limit coronavirus contagion. Ministry officials are working with the Israel Hotel Association to formulate rules that will enable hotels to continue operating while ensuring the health of guests and employees.

Avia Mizrachi-Magen, the head of Fattal’s Israel operations, said that if the regulations will limit hotel dining rooms to 20 people, it would close its properties. That will lead to 50,000 job losses in the hotel sector and suppliers and be a “catastrophe” for the southern resort town of Eilat, she said.

“If it happens, we’ll shut the chain. This needs to be made very clear. No one can manage a vacation under these restrictions – neither us nor our guests,” she added.

Mizrachi-Magen said hotels were operating according to the general Purple Tag standard. Since the Shavuot holiday at the end of May, Israeli hotels have hosted 280,000 guests, of whom 30 were found to be COVID-19 carriers.

“Of course, there’s no way of knowing whether they were infected at a hotel. We’re talking about an 0.01% contagion rate, which shows there’s no correlation between the rate and these damaging rules,” she said.

Isrotel CEO Lior Raviv said he would not be able to operate the chain’s biggest hotels under the stricter rules. “What do they expect, that we’ll serve meals from seven in the morning until six in the evening? That’s impossible,” he said. “It will deal a fatal blow to tourism in Eilat and the Dead Sea and raise unemployment in the city to 80%.”